The £5,000bn bailout
If I were you, I wouldn't get too worked up by the Bank of England's estimate that credit-crunch losses now total £1,800bn on an assortment of financial assets, such as mortgage-backed securities and corporate bonds.
Of course it's a big number - rather bigger than the annual economic output of the UK.
But it's peanuts compared with the losses suffered over just the past month by pension funds, insurance companies, banks and all of us from the slump of more than 25% in the average value of shares listed on global stock markets (just this morning Aviva, our biggest insurer, announced that its capital surplus has fallen by £600m or 32% in less than a month).
Which is to say that the collapse in price of collateralised debt obligations - and all the investment doo-doo created by brilliant bankers that put us in our current hairy predicament - is yesterday's story.
Today's tale is that we're careering into what looks like a pretty nasty global recession, which is causing capital to be withdrawn from all but the least risky economies, markets and business - and is mullering our wealth.
The number that stood out for me in the Bank of England's latest Financial Stability Report, which I would not recommend to those of a nervous disposition, is its estimate that £5,000bn has implicitly or explicitly been made available by central banks and governments since April 2008 to support wholesale funding by banks.
That is a genuinely big number. It's equivalent to about a sixth of the total annual economic output of the whole world.
So to put it another way, we as the taxpayers of the world are funding our banks to the tune of one-sixth of everything we produce.
Blimey, if I may be so bold.
It's the measure of the extent to which the private-sector banking industry has rather let us all down.
It also tells us something about the scale of the economic downturn we're facing.
Unless we're moving into a world - heaven forefend - of semi-permanent nationalisation of our banks, the banks have to be weaned off all that taxpayer support.
That will take years, of course.
But right now, when money's tight, the best way the banks can think of reducing their dependence on taxpayers and the state is to lend less to all of us.
The less they lend to us, the less they need to borrow from elsewhere - either from taxpayers or from more conventional depositors and lenders.
Here's the catch: the less the banks lend, the less money will be available to fund companies' investment and working capital and to finance consumers' purchases of goods and houses.
Which means that the economic downturn will be all the steeper.
What does this mean for the UK?
Well forecasting the path of bank lending is more craft than science.
But the Bank of England provides some useful charts and statistics, which point in an unpleasant direction.
The one bit of good news is that the Bank of England thinks - quite rightly - that bank lending would have fallen off a cliff without the government's recently announced £400bn rescue package for British banks.
Here's the less good news. Credit from the banks is still going to be much harder to obtain for two or three years.
Why?
Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001.
Most of these creditors want their money back now or in the coming two or three years - which is why the Treasury and the Bank of England on behalf of all us as taxpayers is promising to lend more than £500bn to replace the lost funds.
However, to repeat the point I've been banging on about for months, all of this will have to be repaid at some point.
Which, as I've said, puts pressure on our banks to lend less, or at least to massively reduce the rate of growth of lending.
And there's another way of looking at this very powerful force which is shrinking how much banks lend.
From the late 1990's to today, our banks increased the multiple of what they lend compared to their capital resources from 23ish to 33ish.
Or to put it another way, they thought the world was becoming a less risky place and increased by more than 40% their lending relative to the capital they hold to cover potential losses on such lending.
To state the bloomin' obvious, our banks now see the world as a pretty risky place, so they're prepared to lend much less relative to their capital.
The Bank of England thinks this could force them to reduce their assets - by cutting back on lending and dumping investments - by a sixth.
Which may seem a lot, but the Bank of England is doing its best, in trying circumstances, to look on the bright side.
It is projecting a massively reduced rate of growth for UK bank lending to customers, but it is forecasting growth (albeit of the anaemic variety).
How confident is the Bank that there'll be such growth?
Hmmm.
It highlights a chart showing what happened to bank lending in Sweden, Norway, and Japan after comparable shocks.
In each case, the rate of bank lending didn't just slow - the overall stock of loans or credit in the system actually shank for two or three years.
If that were to happen here or globally - and it's not what the Bank of England is forecasting - we'd be coping with a very serious recession.
UPDATE, 11:58AM: It turns out I have identified an error in the Bank's Financial Stability Report. It said, on page 38, that as much as £5,000bn had been made available by governments and central banks since April to support wholesale funding of the world's banks. However the Bank now tells me it meant to say $5,000bn (dollars not pounds) - which is quite a chunky difference (as of today's exchange rate, about a third less).
That said, total taxpayer support for the global banking system isn't far off £5,000bn (yes we're back in sterling), if capital injections and toxic-asset purchases are included, together with guarantees provided in Asia and Australasia (ignored by the Bank for reasons that elude me).
So I think we can stick with £5,000bn as the total value to date of the global banking rescue, though I'm going to brand this as my estimate rather than the Bank of England's.
PS. The Bank of England is, as we speak, modifying the electronic version of its report.
I'm 
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Where was the mainstream media coverage which explained this (without business jargon) in the last decade? I'm a journalist.
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Essentially this government supported banks gaining access to wholesale money in order to provide 4 or 5x salary mortgages at LTV at 90% and above, sometimes interest only.
The government are directly responsible for allowing banks to gain access to this funding as they encourage the housing market bubble to expand to increase tax revenues for Gordon Brown, while he himself then borrowed more money to fund every day government services.
Roberts article just states the ovious that too much debt is unsustainable without real growth.
Going on to todays union leaders and the oil profits arguement I feel it should be pointed out oil companies don't make much profit from selling petrol at the pumps, I don't work for them or own any shares but its ovious the profits they make are very well deserved as they help fund pension funds that have already seen large declines.
A windfall tax would only destory pension funds even more.
Unions leaders are too predictable, if they want to make a real change why not give up some of the 'fat cat' salary payments, bonuses, generous pensions and credit card expenses that they recieve year in year out.
Taxing companies that provide large dividends to pension funds in a time when pension pots have fallen massivly will only further undermine peoples pensions.
Union leaders will only say what pleases your ears in order to get re-elected for the nice 'fat cat' salary + bonuses that they recieve while achieving very little.
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What were the highly paid once id BOE, FSA and Treasury doing when all these were happening.
All so exporting most of the manufacturing base didn't help either.
Markets are behaving like drug addict going on a rampage when drug supply is reduced.
With this amount of losses people will be afraid to invest in shares or houses which in turn going to reduce productivity of this country.
We need fundamental change in the way the country operates, from excessive bonus, taxes, to benefits.
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What I don't understand is why the government and all the climate alarmists are not singing for joy at the moment.
Surely negative growth, a downturn in industrial output, and a falling demand for foreign holidays is precisely the sort of medicine that we need in order to fulfil our Kyoto requirements?
Or might one suggest that the government only pays lip service to our alleged climate problems? I couldn't possibly comment!
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It highlights a chart showing what happened to bank lending in Sweden, Norway, and Japan after comparable shocks.
In each case, the rate of bank lending didn't just slow - the overall stock of loans or credit in the system actually shank for two or three years.
If that were to happen here or globally - and it's not what the Bank of England is forecasting - we'd be coping with a very serious recession.
Its not what the Boe id forecasting eh? Oh well thats it then, nothing to worry about.
My god, have you not seen the fluctuations in currencies and stocks?
We are in the midst of a DEPRESSION man that will not abate until a new world order of Finance is established. Period
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In 2003, Citigroup bank was sued by creditors of Enron Corp. for its role in setting up entities that enabled the Houston-based company to move assets off the balance sheet for Chief Executive Officer Jeffrey Skilling. Citigroup paid $1.66 billion in March to settle the lawsuit. Skilling was convicted of accounting fraud and is now serving a 24 year prison sentence.
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I might be cynical here but:
Whenever there is a loss, there is a profit. (Zero sum game) so:
Who is making a £5,000 billion profit? Can I buy shares?
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One of your best posts for a while Robert. banks indeed will want to cut lending and sell assets to get rid of the pref shares. This can't be done in an expansionary manner so the recession will bite for many months yet.
Ideally we want new banks unencumbered by debt to change the game; will the Government or market come to this conclusion.
Also a huge downside to what we are seeing is the loss of financial moralityby the Government. This is bad becuase it teaches people to behave recklessly and also has a big impact on hwo markets see the UK - look at the exhcnage rate today!
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#4
Unfortunately any environmental gains will be more than offset by the increased carbon emissions generated when we all burn our furniture to keep warm this winter!
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#7
Your assuming the debt is going to be paid back
Your assuming the asset held agains the debt can realised to pay back the debt
You should be assuming that the fluctuations in stocks and currencies if everything to do with with last dog standing.
When the music stops someone is going to be left with doo-doo and a lot of it is sitting there with the tax payer at the moment
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The 30s Depression was lifted by war and re-armament.
This is the time for small credit unions to be re-created where the membership lend deposited funds to members on an agreed basis. Global down is good for the headlines but small building up is more effective (on a sour note think of cancer; starts small gets big)
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No wonder that wholesale funding increased from zero in 2001 to £740bn in June 2008, it was used to buy the supposedly highly profitable financial instruments which turned out to be the toxic assets which are now worthless. Speaking of those who were suckered, in the Telegraph Katherine Griffiths is hinting at the early return of Sir Fred Goodwin... Heaven Forbid!! We don't want another disaster, one at a time is enough please. The man should never be allowed to work again!!
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Iceland have just INCREASED ITS INTREST RATE BY 6% TO 18%
And has Japan liquidates all back into Yen, what country is going to follow?
Cut interest rates? dont make me laugh!
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alphaGlen - Bonuses are earnt fairly, most bankers put in 100+ hours and despite large losses made by some others make large profits that keep pension funds ticking over.
Any profits made in the current problems are being made by bankers that are actually doing a good job, and not trading in toxic assets.
If you did well in your job in the current climate you would accept that your bonus would be kept intact.
And don't forget bonuses are heavily taxed which are government really needs right now.
The UK needs a change back to creating wealth rather than just exporting the work and importing the goods.
The UK also needs to get out of increasing economic growth by borrowing more and more, although are government isn't setting a good example for taxpayers.
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So the wealth of the Pension Funds and the Middleclasses has been obliterated by a handful of corrupt Bankers and reckless speculators.
Britain won't be the same again.
People who were hoping for cheap housing to be built must be feeling gloomy that a Welsh House builder has gone into administration.
The first of many.
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The government is proposing a big increase in public spending and borrowing to fend off recession.
It's never worked. It failed repeatedly in the 20th century and eventually led to a near-collapse of the British economy. the Conservative government in the 1980's finally stopped the rot by reducing spending and increasing taxes in the middle of the recession in 1980. Contrary to the predictions at the time from the Keynesians, it did not lead to economic collapse, and in fact laid the ground for the prosperity of the later 1980's and a rejuvenation of the British economy.
This old deficit financing response to economic difficulty was utterly discredited over 30 years ago - but Gordon Brown is still living in the 1970's apparently.
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when it rains it pours, all this good news how can we cope?
investments are falling along with stock prices the banks are over extended but they are over extended with capitol they didnt have, the government bail out was just a plaster covering the gaiping hole that has deepened.
all i can foresee for mr joe public is higher taxes, higher prices for almost every thing and a government intent on destroying our monetry system, economy and our country as a whole.
never since the viking invasions of the dark ages has this island had so much to fear,
at least in those times alfred stepped up and fought the problem.
if there is in fact nothing the government can do safely then they should resign on mass and allow the people to decide there own fate.
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I have worked over many years in corporate governance in financial institutions including banks and insurance companies. And one constant is the under resourcing of internal audit, risk management and compliance functions in the financial services.
Another constant theme has been the continual complaint from banks etc that they have had to expend significant amounts of money on these corporate functions. However, despite this they have remained under resourced. Perhaps a few more professional corporate governance bods might have prevented some of this tragedy. But for them to be effective they would have needed a spine.
What were the Heads of Internal Audit and the Heads of Risk doing all this time? Let's hope these individuals re-discover their spine at some point!
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OK, so Iceland has raised interest rates to 18% (I bet Kerry's furious....). What is the situation on the street? What is happening in that country to jobs, public sentiment, everyday spending etc. etc. etc.?
How does 18% interest rates effect Joe Bloggs (or the Icelandic equivalent)?
And what parallels (if any) can we draw against the situation in the UK.
What can the current situation in Iceland teach us?
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Of course cuts in interest rates will be made.
Most of the effect will be that Deposit account returns will fall, perhaps to just 1 or 2 percent.
House prices won't recover either, and nor will the Stock market.
People won't be bitten twice!
Shortsold already they won't go buying Shares again in a hurry.
People aren't stupid.
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Bert - this is blatant headline grabbing
yes the investments have dropped circa 25% but that is assuming you bought them last month
pensions should be looked at relative over the long term and these snapshots at figures by you and fellow journos ie Scotsman yesterday are little more than scare mongering
further - just goes to show the sub prime property woes have had little to do with the creative accounting undertaken by all the institutions
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£5,000bn? £5,000,000,000,000? That's £10,000,000 for each reader of this blog...
Half a million readers for each Peston blog post .. that's a large number, but has to be multiplied by ten million quid to get to £5,000bn!
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weejonnie, if only this were a zero-sum game! Unfortunately, there is not a finite and fixed amount of wealth in the world, so it is not a zero-sum situation. Wealth is the result of work (though the beneficiary is not necessarily the one doing the work). Less work means less wealth overall.
Are you too young to have experienced a recession, by any chance?
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No 9 has still got furniture !
One of the lucky ones!
Most of us are feeling the draft right now.
After losing our shirts............
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FTSE 2900 by christmas.
One Pound one Dollar by 2009
Who knows what the Euro will be worth.
Deposit rates at most at 2.5 % per annum.
Plan ahead, and cultivate a vegetable garden, always a good investment.
Plant fruit trees.
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The last Chancellor moved regulation of the banks from the Bank of England to the FSA.
Thsi mess was caused under their watch yet no one has been fired and at worst the people oin charge have all been pensioned off or been in a typically british fashion been promoted!!.
There must be an enquiry into the every operation of the FSA that has taken plaace and more specifically their remit for the future.
You can not sort out a problem when the self same people are running the show that allowed it to happen.
Either we as a country believe it apporpriate that lunatics are allowed to run the asylum or we take hold of this mess and stop it at its core.
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RP
It is clear that old graphs showing old data with totally different variables in a totally different market are so irrelevant, that I wonder why you don?t point this out.
If there was a graph showing what happened to other nations which battled the same conditions as we have now, and won, then I would pay it some attention and give it some credence. But we all know that absolutely nothing like the present situation has ever happened before, even on a smaller scale, then pointing at past situations and graphs to give hope is akin to p*****g in the wind.
Good grief, give me strength. Do the people who run the banks have any new ideas? Are they doomed to fail because they lack creativity and a whole lot of common sense? Am I to look in dustbins for food because madmen are running the asylum?
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Icelands interest rate now 18% ?
It looks like at least one country is doing the sensible thing and encouraging people to borrow less.
It needs to happen here really, maybe not to 18% at the moment, but the rates need to go up. We need to stop talking in terms of borrowing money cheaply and spending our way out of the crises: that just ratchets up debt to the point where the UK will eventually find itself having to be bailed out by the IMF and then we will see Interest Rates of 18% plus, just like Iceland ....
The consumer-fuelled economy is what caused the problem. Why start stoking it up again ?
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BBC Headlines:
Global shares recover lost ground
Duh!!! Is the FT back up at 6750 then - wow 3000 points in a couple of hours.
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"To state the bloomin' obvious, our banks now see the world as a pretty risky place, so they're prepared to lend much less relative to their capital"
No, RP, what was supposed to be 'bloomin' obvious' was that after government assistance the banks involved WOULD be prepared to start lending again.
Did the Govt read the small print on this bailout deal? Or have the very banks that got the assistance 'shafted' them too?
GC
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Do you think you could at least scaremonger in BBC English? Mullering? Doo-doo?
Or, as Manuel might say in response to the kind of language now used by BBC employees: Que????
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Cheap easy credit for a business make it lazy and inefficient. They decide to buy other overpriced businesses rather than expand their own base. A period where good companies grow by funding their own growth will be good for the economy in the long run. There are many opportunities out there.
I have been in business for 30 years since I left college. We run a small profitable company. We have always self funded and the credit crunch is no real worry. Going into debt is a decision managment makes and they should know the consequences.
The doom and gloom is being overdone. All the financial models are rubbish at the moment. I run models for engineering purposes and you ALWAYS have to know that a model works only if the circumstances that are used in the model hold true. So with no real information everyone is just going on gut feeling. This is almost certainly wrong.
People are very good at coping with stress and change. The dislocaction, damage and shock to the financial system are great but normal people will cope far better than Robert gives them credit for . He of course spends all his time talking to bankers etc. To them this is a disaster. Just as miners, shipyeard workers, car workers faced a disaster when their industries contracted. The bulk of the ecomony will soldier on regardless.
I am an eternal optimist. It is probably why I am still in business.
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Thanks to the Dr Who team, for showing us all (earlier in the year) what HooverVille was like. Hope the Daleks put me out of my misery...
But the Doom and Gloom scenes in the "Turn Left" episode of Dr Who aren't beyond the realms of fantasy either. Maybe they won't be caused by a replica of the Titanic crashing into Buckingham Palace, but if things get really bad we could see troops on the streets and people having to share accomodation, etc....
Who says we're not in a depression.
I certainly am.
Hopefully its only a clinical one !
An economic one would be much worse !!
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We have had the Brown Asset Boom, and now we will have the Brown Asset Bust.
Just as Brown was happy for everyone to assume his 'masterly' management of the economy over the last 10 years was responsible, when in fact it was the asset boom everyone must recognise that the asset bust is the real judgement on his time in office.
He did not end boom and bust, he led us into the biggest bust perhaps of all time.
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Let's be realistic here:
The banks have no hope in hell of paying back the tax-payer for these cash injections.
The government have no hope in hell of reducing their borrowing to a manageable level.
Lowering interest rates will only help in the short-term and have the effect of relieving savers of their funds double time.
Our pensions have been destroyed. There will also never be enough public money to pay the public sector workers' index-linked pensions.
It is only a matter of time before the UK will default. Without the means to purchase goods abroad, and without the means to feed, clothe and house the 65 odd million we have in the country, people, especially the elderly, will face a future similar to what we currently see in Zimbabwe.
The people of this country have been royally shafted by the corrupt bankers and politicians. What are we going to do about it?
Can we please be allowed a mass demonstration in London so that our voices are heard?
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19. At 10:14am on 28 Oct 2008, lunatics_and_asylum wrote:
OK, so Iceland has raised interest rates to 18% (I bet Kerry's furious....). What is the situation on the street? What is happening in that country to jobs, public sentiment, everyday spending etc. etc. etc.?
http://news.bbc.co.uk/1/hi/business/7651313.stm
How does 18% interest rates effect Joe Bloggs (or the Icelandic equivalent)?
As above
And what parallels (if any) can we draw against the situation in the UK.
The financial system used for decades is coming to an end and you will see a return to nationalisation and protectionism
What can the current situation in Iceland teach us?
1.Choose qualified leaders, not public school boy clubs or Hegmenon familes
2. Build a home grown economy
3. Pay enough to support people to buy with what they earn rather than credit
Easy Peasy
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Robert,
A very fascinating and detailed report with good deduction demonstrated.
I have mentioned this before on your blogg but I believe it needs to be restated.
I believe that what has allowed this disparity between capital reserves and loan books has been the need to utilise the extra money created by the margin between real inflation and CPI.
With CPI between 1 & 2% yet real inflation within the World's economies running annually at over 5%, compounded over the 80's and 90's and into this decade, easily accounts for this 1/6th of the World economic output.
All these instruments (CDO's and the likes) have been a pure attempt to utilise this margin, this extra 6th of World activity if you like.
The financial World wanted the benefits of low inflation without doing the hard yards to safeguard low inflation, and Politicians the Globe over were ill-equiped to manage inflation. Their answer was CPI without realising that it was opening the door and letting the light of over-leveraging into our darkened room.
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#32 "Cheap easy credit for a business"
Can you give me a phone number?
GC
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"Bankers put us in our current hairy predicament"
"The private-sector banking industry has rather let us all down"
"Global recession"
"Bank lending would have fallen off a cliff without the government's recently announced £400bn rescue package for British banks."
"If that were to happen here or globally"
Blaming all our problems on bankers - check.
Referring to "global" issues all the time - check.
Singing the praises of what little the government has done - check.
All you need to do now is refer to "decisive action" and you've got the Labour soundbite full house.
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I am with supercalm. The only sensible thing to do is buy land and grow food and plant a few chickens. And above all, stop listening to the Today Program where they have a master plan to whip up panic and erode confidence - they have done a fine job on the banks and this morning they started on the insurance companies. They fail to report on the optimistic stories unless they can cover them with a headline such as "September retail crash" (the story - not about a crash - but about the continued increase in retail growth albeit at a slower rate!). I will retreat into my veg plot and switch off the BBC altogether shortly.
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Fruit trees are generally a good investment.
They take a few years to grow, offset some carbon, and produce a healthy return!
I can't wait to see my first thousand pound note.
Of course it won't be worth that much when I do, but it will have a curiosity value at least for a few days !
I hope Mr Peston is pleased with how this has all turned out.
It could have been different.
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7,
I think that money was last scene being flushed down the toilet with little miss prudence...!
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I thought pyramid schemes were illegal?
This is what we are dealing with isn't it? A small amount of money gets leveraged again and agian by people coming into the scheme (new loans) while the guys in the middle (bankers, funds and shareholders) make all the money until the whole thing collapses because it can't grow anymore and implodes on itself.
And we have regulators why?
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'Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001.
Most of these creditors want their money back now or in the coming two or three years'
Could you be more explicit about who these creditors are? We keep hearing from the media that 'the banks' are no longer lending to each other, but which are the banks which have now ceased lending?
In particular, could you tell us how much of this comes from abroad?
The UK has a huge trade deficit, so presumably a lot of the money that British banks were borrowing on the wholesale markets came from from countries like China, Japan or the oil-exporting countries, which have a trade surplus. Is this the case? If so, isn't the Credit Crunch ultimately also a story about creditor nations are losing confidence in debtor nations like the UK and the US?
Wouldn't this mean that any new international financial structure introduced to avoid similar a crisis in the future should include reforms which encourage all countries to move owards balanced trade, balanced current accounts and balanced capital accounts?
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Robert,
I've been following your blog with great interest over the past couple of months. I would be very interested to see your take on a "what if" scenario -
What if the government had let the banks go to the wall?
Everyone seems to agree it would have been catastrophic, but I'd be interested to understand - why? If any other company, in any other industry, had been so irresponsible, and needed so much money to recover, they would have been left to fail.
Taxpayers savings are covered up to £50k - granted, that wouldn't cover everyone, but it would cover the majority - so what would have been the impact of letting the banks fail?
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here we seem to be once again.. huge crisis, turmoil, plunging house prices, hard working grafters of this great land chewed up and spat out and laughed at. "why is you English never seem to complain?" I have heard my whole life.. and again, this government, and all the others at the top who have the inside edge totally understand any jump up and down throw your dummy out the pram antics will result in full scale squishing with a size 10 hobnail coppers boot all now aided by the 300 photographs taken of us on average each day... We have been hearing discontent on the streets of this country for a few years now. The wars we are fighting have had huge impact.. we will see racial tensions race towards a good old fashioned Bradford style riot... there just might a few at the same time and the security services might not be able to cope.. civil war? this screw up by the vile leeches who have sucked our blood dry and left the nation skint whilst they wallowed in huge bonuses (and even now still enjoy lavish perks) might just bring it about.. sit tight, its on its way...
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All I seem to hear these days is the sound of the 'carrion classes' (lawyers, accountants and liquidators) licking their lips - how thankful they must be to the 'carry on class' (bankers et al)!
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Thank you for setting out in logical steps the conclusion I have been anticipating for some weeks now.
Recession? No.
Slump? Yes.
It will take careful political and economic management over years to sort this out. The need for a wider social consensus is going to become apparent as we are all in this together.
This means that in terms of political and commercial leadership this is the end of the clever-dicks making assertions. No more Blair and his heir, methinks! It will mean a return to calculated decision-making based on careful and mature analysis.
The consequences are going to be far-reaching and possibly even beneficial.
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Apropos nothing, I note that today shares are going up, and they don't appear on the front page at news.bbc.co.uk. Unlike yesterday, when they were falling.
Funny that.
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Can the queen sack Gordon Brown> Honest question btw?
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Mr Preston - as has been stated in previous comments......
Why do you harp on about the bankers etc causing this current trouble.
In the same sentences where you mention the bankers, you should state that it was the USA & UK governments that allowed all this cheap money to be borrowed.
The cheap money was then used in leveraged 'investments' by the bankers.
The cheap money was also used by the others for cheap loans from banks to buy houses etc.
Both the above were like children being let lose in a sweet shop.
Stop treating us on the other side of the TV screen as idiots.
I work as a mechanical fitter and even I knew about this potential disaster over two years ago.
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49. At 11:02am on 28 Oct 2008, Man From Milan wrote:
Apropos nothing, I note that today shares are going up, and they don't appear on the front page at news.bbc.co.uk. Unlike yesterday, when they were falling.
Funny that.
No not at all funny, people calling the bottom and people shi*ting from the top
Easy money to be had when there is so much volatility, easy money to be lost.
The fact is they have just about done factoring in the banks, they were factoring the slump and now they are factoring the currencies
They is never a straight down or a straight up and you will see later when the new housing data arrives in the USA that the trend is still down
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Interest rates will have to fall to levels not experienced for a generation. The risk takers in the world economy on which we all depend for prosperity will not borrow until rates fall dramactically in the present climate of falling asset values.
If there are no risk takers to borrow money then it is obvious that no interest can be paid to depositers.
To avoid this base rates need to be cut dramatically and fast or the prosperity of everyone will be much reduced especially savers.
Our economy depends totally on people willing to take a risk and pay a premium to savers if the current situation continues then no one will take the nessecary risks to generate wealth.
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#49, and your point is?
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From this site "The Bank (..BOE) also warned that 1.2 million homeowners in the UK now face going into negative equity if house prices continue recent sharp falls"
'they're warning us, they're warning us, more repossessions for the all of us.."
Warning us in that smug and gratuitous way is a bit like forecasting the weather.
GC
(with apologies to the writers of 'Oh What a Lovely War')
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Repo's up 71 %
We are all doomed you all say !!!
No we are not.....
We will emrege from the recession/ crisis / cataclysmic events / sooner than all you doom merchants all think
The way back up will be slower than the way down but trust me it will happen
If Buffett is getting back in to the market and seeing value then soon more will follow, the markets will bottom out soon grab the bargains while you can
Rates are coming down sharply and this will counterbalance the rise in forthcoming repo's from those that have unfortunatley lost their jobs
Start being positive..... and it will turn....... the herd mentality and information overload is what is creating a self fulfiling prophecy making things even more extreme than they would be.....
only we can turn this around !!!!!!!
I am more than happy to stand for prime minister should anyone request !
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Money is never lost. It just changes pockets. So where is this £5000 billion?????
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nah, #56
we've already got a PM who thinks the way you do thanks,
GC
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BODDINGTON
The FTSE has been falling since 1999 and will continue for some time. Since 1999 the World economy has been funded by toxic debt, now that that is gone it will only get worse.
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JavaMan1984 - No, but parliament can have a vote of no confidence in the PM.
Man From Milan-
Shares are down 45% since the market peak, so a small rise is little comfort in the current climate.
Considering the private sector is cutting salaries rather than jobs isn't it time for wholesale cuts in large salaries for public sector workers earning above £60,000. There are too many to count who could afford to take a pay cut to help reduce the tax burden and yet still lead a good lifestyle in the current economic climate.
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46
Steady, watch out that the terrorism acts aren't brought into play.
Debating possible Civil War is of course not incitement, but we do seem to live in a guilty until proven innocent world!
Unless one is a Bank Director or Hedge Fund Mastermind.
I wonder if any of my other Shares have been shortsold into oblivion yet ?
Probably just a matter of time.....
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#50 - The Queeen cannot "sack" Gordon Brown. However she could dissolve parliament, so forcing a general election. We as an electorate can then "sack" Gordon Brown. This of course is highly unlikely, unless of course unless Her Maj. is responsive to a potential facebook campaign :0)
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#7 and #57
The 5000 billion never existed. It was simply the "value" or market price of the assets (stocks and shares) held. As the market price of those assets falls, the people/ institutions who hold the assets are less wealthy. But no money has changed hands.
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#57
The 5000 is held on pcs all around the world. It exists in bytes only.
Pockets would be extinct if it wasnt for cold mornings
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@ 57
money can be lost.
take your house for example, you might have bought it for £150,00 5 years ago. last year it might have been worth £185,000 its now worth £150,000 or less. loss of £25,000 that never actually exisited. But which your bank allowed you to borrow against for security. welcome to negative equity :(
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56
The time when positive sentiment would have worked was about a year ago.
Now, Nationalization of Banks, mistrust of directors and the Gov't has grown to great.
Private investors who would have agreed with you six months or even a month ago, won't take that risk now.
They see can all see that opportunistic piracy has taken place with little redress for the naive and unwitting small shareholders.
With no protection for Shareholders from the machinations of powerful hedgefunds and a Gov't relishing the destruction of the Banks and who knows what else, who will risk their often hard earned capital is such a market?
(I know mine was hard earned ! Maybe others wasn't)
The only people laughing now are those who have never saved, never aspired, and never thought to own their own home.
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Robert
I enjoy your writing but must take issue with on one minor point.
Do you really understand the numbers you are quoting? It is all too easy to talk in telephone numbers without really having basic understanding of the figures.
As an exercise in trying to comprehend a million - may I recommend you open a new Excel spreadsheet and type in ten number ones (or ten pound signs) into a box. Then copy, highlight and copy and copy again and again until you have a million ones (or pound signs) on the spreadsheet. Now try to imagine how big the spreadsheet would need to be in order to hold a billion!!! I don't know about you, but my mind can't cope with numbers that big. You must be very, very clever (or using numbers you don't understand - like the bankers did).
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Hi Rob,
quick question,
will the dip in oil prices help the economy? the rise in fuel prices in the first place was one of the initial firestarters to this whole crisis, when people realised the had less money in their pockets.
Could this lead to a cheaper spell of living, especially in the lead up to christmas?
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Number 35,
No you can?t have a protest, that?s an act of terrorism, you WILL be detained at Gordon Brown (Dictator?s) pleasure until you borrow more money!
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good point 57
I assume that they - the so called experts - are simply righting the whole thing off as being worthless which is certainly not the case. Surely they will get something back or maybe I am just being stupid and should just change my name to Bert or Gideon and be overdrammatic and stupid or both
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During the depths of the depression during the 1930's US unemployment reached 25% of the workforce.
That left 75% who avoided paying the ultimate price. Millions lost their homes many more did not. Fortunes were made as well. Yes pension pots have been slashed by nearly 50% but for those not retiring for 30 years - so what. For those over 60 it is too late to panic. The time for that was when Blair was given his third term. Those who valued their wealth without considering how much they owed, earned & spent may experience nasty drops in their standard of living.
This is a great opportunity for us all to reflect upon how we live and what is really important.
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Dear Robert,
Would you like me to proof read/check your stuff? Call me old fashioned but 'shank' instead of 'shrank' really grates!
A small fee I'm sure could be agreed!
Most days I spot one and considering the numbers you are influencing I think for the BBC it's vital and someone's got to do it!
Georgina, Cheltenham
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Dear Robert,
Have fallen asleep in back of lorry wondering 'what next! ?.
None of my learned bloggers have been able to solve my dilemma.
Down,up,sideways, whichever way I look, there is gloom and despondancy.
My readers want answers but today there are none.
On the road again, no hope,no light at the end of the tunnel.
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Banks aren't lending to house buyers because they aren't sure that house prices will not fall further. But the reason we got into this mess is precisely because banks lent far too much and far too easily to risky borrowers because they thought it was a one-way bet - that the price of houses (and of other assets too) would keep rising.
Therefore as a longer term solution would it not be sensible to change the rules of mortgage lending to make it mandatory for banks to share in both the spoils if house prices rose and in the risks if house prices fell. They could do this in proportion to the percentage of the price that came from the buyers equity and the bank's loan.
Witht this simple rule borrowers have less of an incentive to buy houses as an investment - after all houses are for living in not to make money out of; and banks have more of an incentive to lend only sensible amounts since they have effectively to underwrite the risk of default or of a fall in asset values.
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What's the point in lowering interest rates. Anyone sensible wouldn't take on more debt if it was free in this climate. Or is the word sensible the flaw in that sentence? Are we set to encourage the irresponsible again?
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#10 PetersKitchen
You are wrong - if debt is not repaid then the borrower has had something for nothing (the value of the loan) - a profit for them.
If sales of assets does not cover a debt secured on them then the previous owner got something for nothing (excess payment against their value security) - a profit for them.
Any real money lost to the banks is 'found' by someone.
For every worhtless tulip bulb purchased for £1,000,000, there is a previous owner who received £1,000,000 for it.
For the government to under write the final price of the 'tulips' is sheer madness - all the traders get off, while the state (taxpayer) is left with baskets of useless tulip bulbs. And all the time the chain of previous owners of the now worthless bulbs have their cash stashed away...
Brown decided to bail the banks out, with out even refering to parliament -- he should be surcharged the whole amount.
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Hi Robert
Blimey (if I may be so bold) how can you let the UK government off so lightly. (Is there some kind of conflict of interest you are not telling us about?) Banks were doing what they do best. Being greedy in an unregulated capitalist system. All they were doing was making a profit in the circumstances of the time.
It is the government and the FSA (which being paid for by the financial industry presented a clear conflict of interest) which totally bungled the affair. They were meant to be there to put a check on financial sector greed and they failed miserably. Where, for example was the FSA when banks were able to offer 125% mortgages, or mortgages where the repayment was 5-6 times earnings? Noticably absent. They were more interested in catching insider traders for selling 300 shares in a company.
So Rob, please declare your interests, because UK government incompetence at every level has it's name written all over this affair, even if it is not entirely to blame for the current problems?
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# 52
The US housing stats I think you refer to actually came out yesterday, and showed a (surprise) 2.7% increase in new house sales versus the previous month. Analysts were expecting a 5% fall. This is good news, but needs to be put in context. New house sales are still down 33% from the same time last year in the US, prices are still falling (but at a slower rate), and the total stock of unsold property remains close to its highs (a lot due to repossessions). Still, the rise in sales is on the back of a 5.5% rise in the sale of existing homes in the US, indicating that a combination of falling prices and improving credit availability in the US is beginning to free up the housing market. The US housing market went into decline about 12 months before the UK's, so on that basis we probably have a further year of pain to go.
# 56
Generally agree with what you're saying and I, too, take comfort from the fact that Warren Buffet is switching his personal investments out of govvies and into equities. It should be noted, though, that WB doesn't claim to be able to call the bottom. His article (in the New York Times, I think) stated that he had no idea whether the market would be higher or lower in one month, or indeed one year, from now. He just sees a number of companies being valued as if sure to go bankrupt, when in fact he's confident they will more likely be declaring record profits in 5, 10, and 20 years. Also note, he thinks it likely that the actions being taken to minimise the economic downturn in countries such as UK and US will be inflationary. That's bad for asset classes such as cash. Hence his view that people should switch from cash to equities.
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We must not be under any illusion, the Government intends return us all back to the robust and well-managed economy that we all knew and loved pre-credit crunch.
Here's a quote to underpin my assertion:
"[GB] said the UK problem was not shortage of demand for homes at "the right prices" but a shortage of mortgages "at the right prices for people to buy"."
http://news.bbc.co.uk/1/hi/uk_politics/7667284.stm
Couple this with a GB?s vision of returning the economy back to 2007 lending levels, and yesterday?s sorry detailing how house prices will have recovered by 2013.
http://news.bbc.co.uk/1/hi/business/7692814.stm
So unless the average wage is about to explode to £58K p.a., any talk about regulation and reform of the lending market is just spin. The Government has bought into the lending market in a very big way, and it has a significant interest in keeping house prices propped up. We need to stop listening to the spin and look at the actions.
Problems of this scale originate from systemic failure at the highest level. The root causes have been identified time and time again in this blog. It looks like the lessons will not be learnt; the bitter pill will not be taken.
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I've just thrown myself of a bridge into cold icy waters and been picked up by an angel and shown how awful life will be without me.
How do I get back to reality??
Steve Bell in the Grauniad shows how wonderful lif can be for some today!
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I'm sorry, but what you have been writing recently is, to me, increasingly at odds with reality.
You've taken up the pro-Government, pro-populist stance that all the hurrah aspects of the pre-crunch situation are the result of the wise decision-making that exemplifies the wonder of modern democracy, while all the boo aspects are down to isolated groups of selfish individuals who didn't fully appreciate their responsibilities to society.
With the greatest of respect, this is complete balderdash. The "good" aspects of pre-crunch - the buoyant stock-market, high and increasing property values, household prosperity above levels of real value creation - all these were states of affairs that required for their continued existence the maintenance of popular illusion that economic reality could be re-written. But, further than that, they were states of affairs that reason could not change - because reason had been dismissed as an outdated concept no longer of any relevance to the modern world.
What you, and the Government, and the general populus need to accept is that the credit crunch, and the ensuing recession, is a social failure, not an aberration caused by a few irresponsible bankers. It's the inevitable result of the adult world deciding it's OK to live in teenage dreamland. What's really required is for society to grow up. The sooner, the better.
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Here is another 'what if'?
What if there had been a media news blackout, where would we be now with this whole fiasco.
I think the media have in many instances been extremely unhelpful with an almost death wish, going back to last year when they seemed determined to ensure we were going to have a recession. First they talked house prices down, then came new buzz words such as credit crunch and then they started talking about job cuts and so forth until we are were we are today. Before that we had all those programmes telling us how easy it was to make our first million by buying property etc.
I think the media do need to be so very careful in such a volatile situation that careless words don't exacerbate the problem even further.
The whole of the money markets seem to be run by people who seem to thrive on adrenallin boosted by ego, who don't seem to be able to think beyond their computer screen and the wider implications of their actions, not only to themselves but to the wider World and if they are also following online news reporters analysis and comments minute by minute who knows what idiotic decisions they are making purely for short term gain.
Maybe the whole of the money markets, worldwide need to go on a sabbatical, to some remote island without communications!!!!
Things need to calm down because at the moment chaos seems to be reigning supreme out there and no-one can possible be making any sense of any of it.
This was a man-made disaster born out of greed not a natural disaster, so needs a man-made solution but cannot be done on the hoof when things keep changing so fast.
Not only dealing with the present situation we have to have world-wide concensus on how to regulate the markets in the future, no point in the UK having regulations, all the companies here would just relocate to somewhere that doesn't regulate and we have to accept there is a global economy and we cannot act in isolation. We might physically be an island but economically we are totally interlinked with the rest of the World, so whatevr the Government might or might not have done here, external influences will always have a much greater impact, as we are now so dependant on the rest of the World for almost everything we need to survive.
A good starting point would be for the UK to work towards self-sufficiency in as many aspects of life that is possible.
'Dig for Victory' seems like a good banner headline!!!!!!!!
We planted our apple and pear trees about five years ago so reaping the harvest right now!!!!
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#66 WROTE:The only people laughing now are those who have never saved, never aspired, and never thought to own their own home.
I am, getting 8% of a bank sooooo desperate for my money
I sold my house in May 2007 ( i think you call that the top?
I have always aspired until the governements of USA nad UK changed financial policy to pursuade people to take out credit rather than
1. be in a position to spend their own money
2. Pay sufficient salaries in order to do the above
3. Have enough to save for a rainy day
As a result
The rich got stupifying richer
The poor were supported pennies above anarchy
The middle class have to pay for it and lose anything they had in an attempt to rectify the mess.
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"43. At 10:54am on 28 Oct 2008, camholder wrote:
I thought pyramid schemes were illegal? "
No. It's only illegal to set up a competing pyramid scheme...
The fact is, our whole establishment is built on one. Says something about British people. No?
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Today is a really good day, I just managed to get over 500 pounds knocked off my brand new Ifor Williams 10x5 twin axle breaked trailer.
Well, it has as much relevance as this blog.
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In the Royal Bank's brand new multi million pound (and that was only the bridge across the main road) headquarters on the outskirts Edinburgh (as is the case with probably all the banks) there is a huge department whose job it is to analyse risk..all day every day...what on earth have they been doing for the last 5 years!
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# 73
I am beginning to believe that electronicTurkey is actually the apocalypse incarnate. Many will scoff, I know, but f you study his posts carefully, there are many clues in there for those whose eyes are open and are willing to believe. What really worries me is that he is getting closer all the time, and now seems to be approaching Hungary (an obvious reference to hunger, ie FAMINE, the third horseman)! There is no escape!
You heard it here first
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Wheelbarrows - that's my investment tip.
You will need them to carry all the worthless sterling around in.
All this explanation is great Robert, but you missed the fundamental.
By not forcing us to ween ourselves off credit, the Government has literally just printed money.
That's why the pound has collapsed, because the money markets see the inflation coming.
The Government thinks it's doing a good thing, by trying to replace the 'craving'.
....but when an addict screams for their heroin - should you continue to give it to them?
In the short term it will keep them quiet - in the long term it will set them back in their rehabilitation.
One of our future generations is going to received the folly of our current generation and will pay heavily.
We're only putting off from today something we will have to face at some point.
This is further exasperated by the fact the whole world is up to the same trick - meaning there will be no hiding place.
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The constant trickle of doom and gloom is helping no one...some one needs to come out and give a critical assessment of where we will be in 12 months time.
We can all see the effects of the lack of regulation and we all know who is responsible.
IMO ,Until the time comes that the housing market bottoms out we will see no change ,we no longer have an industrial base so that will not pull us out of this and foreign control of our energy companies will ensure prices stay higher here than in their home countries putting even more pressure on recovery.
So with interest rates @ 18% is now a good time to invest in icelandic banks ????
I also agree that many of the bonus's that will be paid to some bankers are not an issue, they will have worked hard for them BUT !!!
all the nationalised banks should have there whole boards removed there personal pension funds seized and criminal proceedings taken against them.....it can be done under the prevention of terrorism act as was done in seizing the icelandic banks assets...........these people have brought our country to its knees and the public need to see someones head on a stick to appease them......these pariahs have done what no terrorist could ever have done.......
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The Crisis is a good thing! This is now exposing the fraudulent system of printing fake money with no value for the FED and IMF.
It's a joke about the i.8 trillion loss of credit! There was NO MONEY!
It's hen the FED was set up to have fake reserves and how they loan to banks with nothing of value behind this loaning system.
Also, The USA, worst offenders use this IMF
to loan monet to poor countries and have them under their wicked spell of paying back with selling products of their country to the US at rock bottom prices. the list of corruption goes on and on. The whole system works on debt, they want people and countries to be in debt to keep in control.
It's basically a pyramid system as only a few at the top are the winners.
This is a big wake up call for all of us to vote with our feet. Pull out of the crooked banks and go with ones that aren't linked to the BIG banking system. Check on the internet.
Stop chopping in any store owned by Walmart.
We ned to check what company and bank is owned by the few big corporates that not only
are gobbling up more and more banks and companies worldwide to ahve control but they also control the gov'ts.
Lets all do it and then we will see CHANGE. Don't be a victim of this be proactive and really find out who's running the show.
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There are a couple of things I don't understand about all this. I wonder if anyone can help me?
In times of stock market volatility & impending recession, gold seems to be the classic "safe haven" to which everyone flees. And that drives the price of gold up. We're not seeing that. In fact, the price of gold has dropped by about 30% in recent months. Why is that?
The other thing is that the US dollar is getting stronger -- surely the massive amounts of cash the Fed is pumping into the American economy should be diluting the value of the dollar, shouldn't it?
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Mr Peston
I am pleased that at last somebody is actually mentionning the huge losses suffered by the insurance companies and the pensions funds.
That will really hurt real people not only banks or their shareholders. I am afraid I cannot see how the planned huge extra borrowing will help these people.In the end the only solution will be to cut costs and try to live within our means and that goes for the government too . I cannot see Brown doing that as he is too busy trying to grab the headlines for short term political advantages.
15 years of growth and to end up with this situation . What a shame and shame on you mr Brown ( global or not you were in charge and let the problem develop ) you should be more humble and apologize to the british people for the hurt you are going to cause them ( fat chance of that!! )
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#18
Spot on! I said the same thing (specific to Northern Rock and their inadequate and under performing Risk and Internal Audit functions) a while ago on this blog. I don't think the Chief Executives should be the only ones walked off the premises (although they should always take ultimate responsibility).
#22
500k readers? I read last week it was 1m? Has RP's blog lost 50pc of it's investors too?
#31
Apparently Manuel wouldn't even say that - He'd be too busy complaining about Russell Brand & Jonathan Ross. It's amazing how some comedians (or comedy actors) can't take a joke!
If Iceland's interest rate is 18pc, shouldn't we all be borrowing at 7pc and saving it over there?! Oh, right - Sorry!
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This comment was removed because the moderators found it broke the House Rules.
16:
Check your figures.
The conservative government actually increased spending until 1981, because it believed in the monetarist nonsense. It changed only when they had the near disaster in 1982.
Secondly, it did cut expenditure in health service (the number of hospital beds was reduced by 4O%), social security etc., but increased its spending on subsidising closure of manufacturing plants. In textile, firms were given money for every job they abolished.
Thirdly, the source of balancing the budget came from the North Sea oil revenue that was very significant revenue until 1991.
And what can we say about the 1987 budget? How many people had the bitter soup of it in 1991?
Most of the economic policies of the 198Os were disasterous and the economy survived in spite of them and not becouse of them.
This, of course, has not an excuse of the mismanagement of the Labour governments of the last 11 years.
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2 men walk into a bankm looking for a loan of 50,000. 1st man has no debt, 10,000 in savings. 2nd man owns a house but is in negative equity to the tune of 75,000 and has no savings.
Assuming the bank lends to one of them, who will it be and why?
If you can answer this then you have the answers to all our problems
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the-real-truth
''Any real money lost to the banks is 'found' by someone.''
I think you will find that they only lose 'projected profits'. Which is the Interest that was due to be paid back before the artificial cash is delted of their system.
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Update at 11:58
Robert,
You could have just changed the headline!
You didn't identify an error. You reported it as fact and someone then told you it was an error?
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Andrew Knight (#2)
If a company owns the supply chain as to do oil compnies, the profit can be taken at any stage, and the claim can truthfully be made that profit is not made the pumps. It has been made upstream!
PetersKitchen (#5)
Not so, merely the lip, we have yet to touch the bottom.
robertdmarshall (#26)
The 'Peter Principle', if thet cannot hack, boot 'em upstairs!
Gosh, what a lot of great posts! Question is, who's going to fund all the Government borrowing? There must be some rich mutts somewhere.
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#76, I think you are correct, but the essential part of this is the timing difference. The gains were in the past and were already factored into the economy.
If you borrowed more than you could pay back, and you consumed it all in the past, it doesn't matter if the lender writes off the debt today - you can't pay it back anyway, hence you don't gain anything of any value.
So, the losses today are not matched by real gains today, and valuations need to catch up. So one cannot easily "buy shares in the upside" (as suggested by #7)
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Not being in the banking industry....I'm confused. If nobody has any money to lend, even at top level.....where is the Government borrowing the money from, in order to bail out the banks and put each UK taxpayer in debt to the tune of £16k each ?
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#7 and #57 ask a very sensible question: where did the £5 trillion go?
I'm not convinced by the answers about it never existing in the first place. If the banks are in debt to the huge extent that they are, then surely they lent the money to someone, even if it was secured against worthless assets?
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#91
About Gold.
here is one take on why prices are "depressed".
http://www.marketoracle.co.uk/Article6961.html
I have bought Gold (not a lot) as a long term investment. Yes it can go down as well as up but I think long term, when the reasons for the unusual price depressing activity are done the price will rise.
Medium to long term investment though.
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Just to give an idea of what £350 billion could do.
£30 Billion Construct 20 Large Nuclear Power Stations
£30 Billion Construct 20 large Coal fired power stations with CO2 sctubbing
£20 Billion Install 500 subsea generators in the Pentland Firth with improved power distribution
£20 Billion Implement fuel cell development
£30 Billion Develop UK electric cars with Honda
£20 Billion Develop UK electric power africultural vehicles.
£30 Billion Electrify East / West coast train lines.
Legacy for our children and some change left over......
What we are doing is crazy.
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Robert
regarding your update - what the difference between $5bn and £5bn ?
Presumably its just whether our grand chidren or great grand children pay it off...
I would like the follwing generation to be debt free - debt is slavery.
..
Re: pyramid schemes - yes they are illegal.
They are illegal because some people are too stupid to see that they don't lead to riches for everyone, these people need to be protected from themselves...
Unfortunately for us Gordon Brown is one of those people - so he has brought a place on such a scheme for each and everyone of us, using our money.
And, worse of all, as we are all in the pyramid -- there is noone for us to recover our memebership money from... we are the losers at the bottom of the pyramid - Brown is the man at the top.
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RE Post #57 Meritocracy
you're are working on the assumption that the money was there in the first place, what we actually had was asset inflation that we borrowed against. As the asset inflation reduces so does the ability to borrow
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# 96
You can't catch us out that easily. This is the 21st century after all! The answer is: You get a company with no known credentials, who employ school leavers who nearly but not quite managed to get at least one GCSE, to do a credit check on both candidates. You then take that information, and without any sort of double check yourself, lend to one or both or neither, depending on what combination your computer system will accept on that particular day. QED.
Have to be quicker than that to catch us out, and NO, I am not a retired bank manager!
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It is a shocking number, particularly when looked at from the following perspective:
The population of the world is currently estimated to be 6.7 billion people.
So instead of giving a $5000 billion bail-out to the banks, you could instead give every man, woman and child on the planet - from the Dogon tribe of Mali to the socialites of Manhattan - nearly $750 each.
$750 is quite a sum even in a developed nation. And wouldn't spending the money in that fashion actually be more likely to stimulate the global economy, as people either spend or save it?
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That's some bed to stick all those notes under. Withdrawing assets from one place means they have to go somewhere in the mean time, even if it's just some banker sitting on them until his cheque's cashed. The call for commodities isn't reflecting that kind of growth, so perhaps Planet Zog's taking the usual bashing - to the uninitiated, Planet Zog was originally the home of the statistical aberation that the net global total of balance of payments never sums to zero. Unless and until we can have confidence in the statistics from all concerned (and I think you'll be dining out on that Bank confusion for weeks ;), including every financial institution larger than Bluebottle's piggy-bank, then there's no chance of plumbing the exact depths, and just as it was quite possible to see some ridiculously high P:E ratios until recently, there's every scope to see the exact opposite soon, when nobody has any value because their earnings potential will depend on a house of cards known as their customer base.
And that's because for the last month, the Governmental institutions at all levels have been thumb up Keyser (misspelling deliberate) and mind in neutral, when they should have taken the bear by the claws (well, you can't say bull by the horns in these markets, and it does suggest one of the malign influences shaking the tree) and got a grip. HBOS and Lloyds, to name a local example, is in the doldrums, Lloyds TSB taking a pasting for risk derived from an asset it hasn't acquired yet, etc etc. One can see Alec Salmond's interview with them being rather short and not far from the text of Brand and Ross' phone call from Manuel: Qué?
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Niether a change of the present Gov't or election of another will achieve whats really needed here! Prison sentences for all those at the top of the money tree, and worldwide sequestration of all monies including those held in off-shore accounts especially those recipients of UK passports of convenience.
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Many of you all just complain. Do something useful
I have listed a petition at No10 Dwoning St which should - if there is a shred of decency left in government - be a start in the right directtion to holding this country together.
You may not benefit from signing because you are lucky enough to be beyond risk, but think of others not so fortunate. I'm not speaking of myself here.
http://petitions.number10.gov.uk/Harsh-treatment
SIGN IT!
I want decency and tolerance from the lenders and an end to what has become, for many, the worst fallout of usury. I understand that in the USA the situation is 1000 times worse, socially and economically.
Christian ethics call for forbearance, respect, and never would countenance the attribution of 'fault' nor punish perceived 'irresponsiblity' by ordinary folk just trying to get on in life and led to this by years and years of assurances of stable economics from the leadership of the UK.
Brown, again, trots out his famous line 'we are doing all we can' In reality he has done NOTHING. Nothing for business, nothing for homeowners.
As far as repossessions first the poor owner will learn about 'Gordon Brown's limp-wristed 'new guidelines to courts' in the matter of how repossession proceedings are handled will be when they are standing in front of the judge. The whole business of 'repossession' and the way it is handled 'legally' is an absolute DISGRACE. I understand it is FAR worse in the USA.
1. IF your home is repossessed, it will be sold (auctioned) at some value (over which you have no control).
2. You will be then liable for the shortfall of the amount borrowed plus interest.
3. Bankrupcy proceedings will inevitably follow almost immediately (and sometimes on the same day if you have an all-risks mortgage) where virtually everything else you own will follow the same route except that the sale of items at seizure will yield little more than scrap value. Bankrupcy proceedings often preceed repossession as a means to facilitate the latter.
Bankrupcy - despite the smooth reassurances of some insolvency practitioners (including on this site, to my horror) that 'it only lasts X years' is quite simply a life prison sentence for the poor victim, unless they can hide their past by marriage and change of name or make a fortune, which of course is most unlikely except in the most extraordinary cases. IVA would be helpful had it not such stigma attaching (eg: Private Eye - 'IVA is just bankrupcy by another name') and it the creditors were required to abide by the practioner's advice to accept settlement rather than vote on it.
Repossession is really just bankrupcy by another name and the 'legal' measures and initiatives suggested so far by the Government on either or both belong in the same bucket.
I have never been a victim of those things of which I speak but speak for many who have been or will soon be.
Everything I have read and seen tells me that Brown, quite possibly with the tacit support of all the Lib Dems and Conservatives, has taken a fundamental decision (assuming he has all the facts at his fingertips) to save the banking and economic system as a status quo at any price. That price is already self-evidently the collapse of as many livelihoods as 'it takes'. To use his oft-repeated phrase.
Far from anyone stepping forward to do the decent thing there will be no quarter given on insolvency, seizure, foreclosure, court order etc etc. I have repeated these things often. Beyond intellectual discussions in the House of Lords, and there have been many, I do not expect any substantive or qualitative interest to be shown by any politician at any time in the recent future or long term.
As a consequence of Brown's choice of usury over decency, now what is coming is a great levelling (razing) for the whole of the of 'free-standing' people in the Uk and globally. I am convinced that we are now on our own. This PM, son of of a clergyman and self-professed champion of the rights of the individual, has written and said, more times than any other politician in British history, the words:
' What angers me and inspires me to act is when people are treated unfairly'
Brown, in shoring up a completely self-centred and ruthless financial system is in denial of his own philosophies because he himself is so much part of that system and cannot admit its failure. I despair that he is being lauded in other countries.
Is there no representatives in either House at Westminster or in the Royal Family with sufficient moral fibre to set aside vested interest and bring the social/economic truth of this appalling situation to a swift and graceful end?
Are there no more than ordinary people reading this blog on the greatest media organ in the free world?
And the BBC! All the current affairs programmes with all those top businessmen! When are you going to bring in the radical and outspoken campaigners on social affairs?
Is the BBC going to do NO MORE than give a running commentary on this ghastly business? Is the best the BBC can do at this time pay idiots millions of pounds a year to generate entertainment that belongs on YouTube? is that the level you've sunk to? Have you forgotten the people pay your bills?
GC
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Thanks Robert, another good insight.
Question ... How much personal accumulated wealth has to be destroyed (re savings, pensions, investments etc) before the average Joe Bloggs (a UK plumber with an opinion!) vents his anger ... even on the street?
Answer ... we're British - stiff upper lip and all that - not how we do things!
So we get the bad Political, Financial and Regulatory systems we deserve that continues to impoverish us all!
UK Governments are arogant - they ignore the people (eg anti-Gulf war protests - largest in UK history?) and the people seem only to get upset when they can't buy petrol/ diesel!!
Is there no hope?
Any votes for a Royal Commission (Ooops, forgot, we don't do that anymore) or should we all shout for SOCM (Serious Organised Crime Muppets) to finger the guilty - then probably white-wash them!!
Off to the Palace now to ask Her Maj why I should still be her passive subject.
I really want to be a very very angry citizen!!!
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Robert Peston,
£5 tn or 5 $tn what does it matter? It is only a poor guess, like the one they made six months ago. In six months time it will be ????
The underlying problem is that nobody actually knows what the figure is. This lack of transparency is the constipation in the markets and in the real economy.
Until we get some accounts from all of the major players we will not know. Unfortunately we will need to wait a year or more for the accounts.
I have no idea which banks are well financed and which are worthless, nor do any of the banks. This situation has not improved in the last year and will not for another year. The net result is a gigantic reduction in liquidity all round the globe. This has the unavoidable consequence of a deep recession leading to a depression and a slump.
If there is another way - please explain it to us. I believe it is disingenuous of the authorities (BoE, FSA, Treasury etc.) to pretend otherwise, and worse that attempting to hide the situation will prolong the recession/depression.
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Robert,
You mention the bank's lending ratios increasing from 23ish to 33ish...but these only relate to the -on balance sheet- reserve capital requirements for bank lending.
What about the -off balance sheet- lending spree that the banks have embarked on in the form of securitisations and SIV's etc.
Securitisation enabled the use of -off balance sheet- accounting. It facilitated a method of lending without using capital. Lending massively expanded and banks booked all the profits associated with this deception.
What has happened is akin to the ENRON scandal, except this time it is a SYSTEMIC FRAUD perpetrated by all of the US and UK banks on a massive scale.
Basically it?s the mother of all ponzi/pyramid schemes. When are the prosecutors going to take action???
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#87
You heard it here first.
As previously stated we have entered Hungary in more ways than one.
The potatoes I so gratefully invested in have rotted in the back of the truck.
Passing through this wonderful country reminds me of my childhood.
England, land of hope and glory.
You can't lose money!!!!!!!!!!!!!!!!!!!
Put it in a fire and see what happens, it burns. The parrot is dead.
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#100 crispblog
Ok I'll give you that the hole in the banks books (unrepayable loans) was already there.
The borrowers 'gain' is realised at the point of borrowing, the banks balancing loss is only realised when the loan is defaulted.
If banks gave away their shareholders money that is fine by me -- thats between shareholders and the directors.
My gripe is having my money (via taxes) dragged in to a stupid situation by a stupid man -- Browns Profligancy vs My Prudence.
He repays stupid shareholders who allowed their money to be given away, with my money that had been sensibly protected from everything apart from the taxman.
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Interesting read:
http://www.usnews.com/blogs/the-home-front/2008/10/27/will-jpmorgan-lend-its-bailout-cash-perhaps-not.html
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#1, you won't find the "jargon-free" explanation here, basically you get the Treasury view here - hence zero criticism of the true cause of the incipient in the UK - and load of BS about how it is everyone's fault except Brown and the government.
So far virtually every single "jargon-free" detail has been incorrect and inaccurate - sometimes wildly so.
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Has no one worked it out yet?
The Governments have encouraged the media to brainwash the people into wanting more and more material things in the belief this will satisfy them.
Don't believe me? Watch half an hour of kids TV on a Saturday morning and see how the advertisers are getting away with "buy this and you will be happy" to our kids.
The first of these 'grown' generations have come to fruition recently. The banks offered more and more, for less and less. People actually believed they would be able to pay it back. Getting credit like water - going against all the previous generations rules (only buy what you can afford - never borrow)
Society is (generally) obsessed with trying to emulate the rich. We are constantly bombarded with pictures stick insects (Posh Spice) and so called 'successful' superstars.
(I say so-called because the BBC had someone on the other morning claiming that Jordan (aka Katie Price) was an astute business woman - of course forgetting her inital fame and fortune came from the surgeons knife)
...and now the plan has come full circle - it's time to repossess or rather collect. The Government won't be able to help the millions of jobless, because they've just given away the next 3 years spending to the banks.
With present company excluded - the masters of this world have, and are, producing a workforce - automatons - who will do anything you tell them so long as you can satisfy their needs with X-factor voting and pictures of 'what you can achieve' - without actually giving them anything they need to achieve it (intelligence).
Success is becoming more and more luck based than skill based.
This is not a good path for a society.
If you don't believe me - head down to your local secondary school and ask the kids what they want to be when they grow up - 'Rich and famous' will be the most common answer - no mention of how to achieve it - no mention of working for it - it will just happen, they believe.
If society - and it starts with parents - don't switch that TV off and cut their children off from the media - then their futures are not much more than slavery.
I hope every parent who reads this takes drastic action - we are all relying on you. This generation has just handed the collective keys over to the banks - the next generation will need skill and intelligence to get them back.
This banking crisis is born from a social crisis of materialism. Solve the social crisis and you never have the financial one.
One final thought......
We are now back to where we were 5 years ago, soon we will be back to where we were 10 years ago.
If we had changed our economic system 10 years ago - even if it was for a 'slow growth' system - we would be much better off now.
Capitalism is like the hare and the tortoise race. The Capitalist hare ran off at the start, but look here, all the tortoise economies are now passing us by....
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well said #104
You'd think all those Labour MPs with er, 'social conscience' would be outraged.
WHERE IS OUR PARLIAMENT?
Bring back Oliver Cromwell I say.
GC
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Lets see
A windfall tax on Oil companies (only uk ones of course)
Which are owned almost entirely by Pension Funds and Life insurance companies,
The money of which may be used to reduce fuel bills for some pensioners!
Right so lets rob all pension funds and give a little back to some pensioners!
Madness !
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And the wicked Witch of the East said.....
If you don't believe in £5,000bn of money as profit then it simply dissapears!
....only to re-appear as your (and your childrens) tax liability for the rest of your lives.
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#104, one more thing 350bn MIGHT be able to do is buy some basic financial numeracy lessons for people who claim this money has been consumed.
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102
A lot of the money went into the hands of people inheriting and selling their parents Houses.
Also people selling their Houses and trading down.
And of course to those who spent their money on holiday homes in Spain.
Spanish property is in trouble.
How does Santander (Abbey, Alliance and Leicester and now B and B (a gift from Gov't)) raise its cash?
Where do they get the money from?
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There use to be a lot of talk about M0 and M4 money supply figures. In the last 18 months I have only heard one reference to these. What happened to them?
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Ask not why the Banks did fail but why those still standing are and just how did they manage not to get caught up in the maelstrom?
Surely Santanders business is no sounder than anyone elses?
We need to be told !
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All posts are pre-moderated. What does this mean? Seems like a good question to me.
I wonder if the BoE error in confusing £ and $ is some sort of Freudian slip or is related to the use of ? in the comments to indicate some unknown currency.
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In essence nothing has changed: private sector debt is simply being transferred to public ownership, interest rates are being pushed as low as they can go to help the indebted (read governments), the banks that have failed have been absorbed by other, stronger entities (Nomura's takeover of Lehman has been termed by some as a reverse takeover with Lehman executives taking senior roles) : its big business as usual.
If the market were left to its own devices house prices would be half where they are now, interest rates would be higher and savers (pensioners) FOR ONCE would be getting a reasonable return on their cash.
All along we seem to have forgotten what capitalism is all about - capital - and that huge amounts of credit, wherever it might be, private or public, is no substitute.
One contributor to this column termed this as socialism for the rich and capitalism for the poor; and I agree. Government intervention to avoid global recession sounds all very noble but keeping the old financial order alive for any longer is doing none of us any good.
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#95, Well total public spending went from 104bn to 116bn GBP in 1980 to 1981. Inflation was running at around 15%, meaning the Tories increased spending by 40 million in real terms. Shock horror.
Oh and public sector spend increased all through the Tory era. Maybe it didn't nearly double in 7 years in a time of relatively low inflation( single figures )
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66 Supercalmdown:
"The only people laughing now are those who have never saved, never aspired, and never thought to own their own home."
You forget those who bought their homes at a reasonable multiple of salary and so can afford their repayments and to sit out any negative equity (or long enough ago that they have plenty of spare equity), and also those who never borrowed to fund a lifestyle they couldn't afford.
Having said that with the redundancies to come the only ones who are truly laughing are those who have already become used to a life on benefits.
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# 115
I knew it. Your latest pronouncement couldn't be clearer. Count me among your followers. Others will soon join us!
PS. Enjoy Hungary. I understand the Turkish Baths are exceptional.
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ITS QUITE BIZZARE THAT MR KING HAVING SAT ON HIS HANDS WHILE THIS DREADFUL SITUATION DEVELOPED HAS THE FACE TO MAKE THESE OBSERVATIONS :SURELY A P45 WOULD BE BETTER FOR HIM.
PERHAPS HE SHOULD PAY BACK HIS SALARY TOO.
ITS TIME THE REGULATORS DID THEIR JOBS RATHER THAN COLLECT THEIR SALARY CHEQUES.
MESSRS BROWN DARLING & lord MANDY WILL TAKE US ALL OVER THE PRECIPICE INTO FINANCIAL OBLIVION,WHILST THEY CLING TO POWER.
THIS WHOLE MESS IS NOW WORSE THAN 1979 IT WILL TAKE 30 YEARS TO RESOLVE THIS SAD CATASTROPHE.
NEW LABOUR? ITS ALL OLD LABOUR AND NONE OF IT IS WORKING.
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Here's a nice scenario.
Imagine two firms, both of which make something the other firm wants i.e. create wealth. Every time they trade money passes - first one way, then the next. Both are happy. Material wealth inceases for both - even though the amount of money does not.
Along comes another firm making one of the products - one of the original firms starts dealing with this firm to receive some goods - but the new firm doesn't buy any goods, it just sells the goods it makes.
Gradually the money supply of the two original firms disappears. In order to keep trading liquidity must be added - and the onlyy source of money is the new firm. The extra costs will keep gnawing away until eventually the firm has to close down or the third firm buys the original firm.
This is how a marked trade imbalance works.
With regard to lending - this is a slow-motion pyramid selling scheme. The lenders get more money back so there is a gradual loss of liquidity in the market - every loan overall reduces this liquidity, the lenders have to resort to more and more diverse ways to continue to extract money. If companies grow through the use of this money then we have a boom - but growth only occurs providing that there are more markets available.
Eventually, of course, the lenders reach a position where they have lent more money than can be repaid - then defaults rise - and we have a bust. Banks fail -
There have been several boom-bust cycles in the 20th century, all can be traced back to the eventual inability of firms/ countries/ people to pay debt. The greatest of them all has yet to come - it will happen when the Country with the highest debt decides it can no longer service - which does NOT mean reduce - the debt.
As a final note - when this government means that it will reduce borrowing, it is talking about the second derivative - the rate of INCREASE of DEBT will DECREASE. UK Debt will STILL increase.
As mentioned above, this is the situation of a firm with cash shortage due to economic factors. Increasing borrowing will postpone but just make the final crash that much bigger.
We have lived beyond our means for the last 10 years - we have thought we deserved better schools, better health service - just like we would like 50" plasma televisions, however the wealth of the Country has not been sufficient to afford them. Those who have money are laughing, literally, all the way to the bank. For the Country, however, austerity beckons - till we get used to living within our means.
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#35 Wykhamist
Good post...I agree with everything you mention as well as guycroft's post #172 from RP's blog yesterday.
The only thing that may have possibly prevented this crisis would have been a UK constitution....but, I guess, getting one would be the political equivalent of turkeys voting for Christmas (a bit like proportional representation).
I seem to remember there was a constitution movement (no pun) after the last recession.....but it seemed to just peter out.
After watching Panorama's programme last night....'You can run but you can't hide', which reported, that in Britain today, we are the most spied on nation on the planet. Our civil liberties are being eroded by the day, just so that the political and wealthy elite can keep control and power. As an example, at the first sign of systemic bank failure, Brown, without hesitation, resorted to using anti-terrorist legislation to seize Icelandic assets in this country.
Living here is nothing less than to living in a dictatorship (masquerading as a democracy) where we are all enslaved by the masters of usury.
A few years ago I met a senior Liberal Party politician during one of their party conferences in Brighton. I literally happened to bump into him at the hotel bar and chatted with him for quite some time. He revealed to me the lie that all senior politicians are aware of but dare not raise in public (it's funny how a 'little' achohol loosens the tongue). He advised me that they all live within the lie and that if any of them were to 'over-step the line' and publicly reveal it, or raise it for open debate, then it would be the end of their public career and they would be subjected to media villification, derision and suffer media induced (hysteria driven) credibility loss. I was of course extremely shocked by this revelation.
This cabal of politicians and their wealthy backers are all in this together. They are completely unaccountable and above the law as they control the judiciary and are known as the establishment. The phrase that they have been using recently?. 'we?re all in this together', seems more of a threat to those that might break ranks rather than to comfort the wider population that the crisis is being contained and is under control. The only thing that can de-stabilise their quest for more money and control is excessive greed, as we are witnessing now. All of the senior people in the mainstream media, the judiciary and other controlling agencies are all living within the lie.
I guess the only way out is to move to a safer more honest society/country.
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The problam, as some have said, is transparency - but it is more than that. It is that, even if banks were truly transparent about their REAL balance sheet position, the BoE knows that it dare not share that information since it would affect the share price of those banks, and may even encourage a run on the banks.
What Mervyn King needs to do is, in my view:
1. announce that there will be a 'balance sheet amnesty', under pain of huge fines unless reported to him within ten working days (quick Bill in Parliament needed here).
2. simultaneously announce that measures taken in relation to the BoE dealing with off balance sheet and high risk asset movements will be secret, under pain of imprisonment if revealed (another Bill)
3. resignations of all current bank boards will be required, under companies legislation.
4. a 'UK toxic assets' statement to be made by the BoE, alongside a detailed plan related not to banks by name but to TYPES of asset 'problem'.
Someone then needs to get all of the editors of the newspapers and broadcasters in to explain - in words of one syllable - the sensitivity of all of this.
And if one more bank executive dares to blame the government, the FSA, the population as a whole, the weather or the price of fish for the decisions they took, shooting would be too good for them...
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# 91
There are a couple of reasons why gold is falling. Incidentally, the fall is a recent thing (last couple of weeks). Prior to that the price had been rising strongly to over $1000/ounce. The current fall is a combination of deflation fears and USD strength. The extreme contraction of credit we're seeing, plus the rapid fall in commodity prices, means we've seen an equally rapid shift in inflation expectations, and gold is seen as a hedge against inflation. Conversely, in a world faced with deflation, gold is unattractive.
The second reason for gold's decline is also linked to your other question, namely USD strength. Gold is used as a hedge against a fall in the value of USD so, as USD is strengthening, the obvious trade is Buy USD, Sell Gold. Why is USD strengthening? That's due to unwinding of the "carry trade", whereby investors borrow in low-interest rate currencies, and invest in high interest rate ones. That trade is unwinding as rates elsewhere in the world (eg EUR, GBP) fall at a faster rate than in the US. Therefore investors sell non-US assets, and exchange those currencies for USD, meaning USD strengthens and other currencies weaken.
The $64 million (or gold equivalent) question is whether the strengthening of USD is sustainable, and the answer is probably No. If that's the case, then the medium term outlook for the gold price is to move back up, especially as many of the steps being taken to counter the credit reduction are potentially inflationary, which also supports the gold price.
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With regards to the many questions about "where has the x trillion gone".
It seems to me (am happy to be shown otherwise) that the snappy answer is "back to the future"
When we pay for things on credit we are, in effect, using money that has yet to be earnt to pay for things now.
When there is wholesale deleveraging as now - or when we suddenly have to pay back our credit early - then we sell the assets and use the proceeds to pay back the loan. In paying back the loan the money that was used to buy the assets goes back to the future. And so it does, apparently, disappear from today's economy.
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#32
I completely agree with your initial sentiment.
Only the bad business, the bad borrowers and the bad banks will collapse in this recession.
My partner runs a business and she is also self-funded. A decision we took at the start - to much ridicule from our peers who were talking about their 'multi million pound property portolios'
We now sit here - benefitting from this mess - interest rate cuts everywhere and properties that are making far more than their interest payment. No new builds, no get rich quick property - just plain and simple basics.
Where are all the detractors now?
Well I found one - he is the last one in this set of stories. Typical of our peers - 'buy 4 get one free' - and this idiot is an accountant!
http://news.bbc.co.uk/1/hi/business/7680498.stm
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One year ago it was projected as a one billion dollar loss
Six months ago it was projected as a one trillion dollar loss
By Christmas it is projected to approach ten trillion
Can we expect a hundred trillion projected losses by next summer ,which would produce a pyramid the size of Giza in ten dollar bills [the eleventh wonder of the world , a fitting memorial to the delusional insane and an alternative fuel suply for years to come ]
It all started when Pastor Phelps was unconstitutionaly fined 100 million dollars warning not to hurt the annointed ....or else [now apparent.]
The usa government should pay PHELPS 100 million dollars IN PUNITIVE DAMAGES and repent in sack cloth and aaa'shes to avoid the final judgement and wall st be made to eat its golden bull
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@ 118 laughingblacksheep
Agree. The need to understand the 'official' line is what has made reading this blog useful recently. The original question - who provides the 'news' was made with this in mind. We are all complicit, to some extent, in not asking good, simple questions about where all the new national wealth came from. Of course, now, lots of people here are keen on knowing where it has all gone.
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Please note:
Bank Shareholders haven't benefited from this bailout.
Bradford and Bingley Shareholders lost everything so to have Northern Rocks.
The collapse in Share prices in th eother banks is no help to shareholders.
Remember most of the shareholders are pension funds, owning the majority of the shares.
So anyone with a private pension scheme has lost out.
Also life policy holders, unit trust investors etc, etc.
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#99 foolishblogwatcher
BP makes far more than petrol, read its business operations. Yes it makes upstream profits but petrol is but one tiny bit of what BP does and the reason why BP does so well.
Read in its reports about the billions than will be paid in dividends to pension funds as well.
I doubt the union leaders will give up the 'fat cat' lifestyle including union credit cards, bonuses, corporate entertainment costs and all the other perks they enjoy while they ask for pension funds to be raided by asking for a windfall tax on the profits that are turned into dividends for pension funds.
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I guess it is interesting that the Bank of England feels it needs to point out that the
world credit crunch losses now totals £1.8 trillion (if you are American) (1.8 Billion pounds if you are British).
This sum is the sort of amount that is the UK's public sector pension deficit.
Shouldn't the Bank be pointing this out?
It dwarfs the amount the UK is presently having to pay into the banks.
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The Gravy Train merchants & their Political sycophants need to pay a very personal price for this terrible situation .Millions of households will suffer for years as a result of the unacceptable greed of the few who have raped and pillaged at the expense of the whole population with a total and absolute disregard for others.
Any institution which receives state funding,must have every Main Board Director removed all salary payments expenses etc must be recovered and persued to bankruptcy as appropriate.
We have got to change the current policy of using other peoples money/shareholders funds deposits etc as money/resources to be plundered with flippant abandon.
Alexander Curzon
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This maybe all too complex for me, but it seems a large part of the problem has been the insane desire over the last 5 - 10 years to constantly look to upscale from one house to another - forever seeking a bigger (and better?) home and lifestyle.
There is nothing wrong in seeking to improve oneself, but having bought my second home in 1992 (just when the last "recession" hit - with interest rate at 13.5% mind you) - I've been more than happy to remain put. As a consequence, my mortgage is well within my means. I could have moved and doubled/tripled my mortgage many times over the last 16 years and would be faced with a significantly larger mortgage today.
We seem to be hell bent on bigger homes and the "collapse" of the mortgage market in the UK seems to be the main cause of the concerns - afterall, hasn't the desire to borrow pushed us to where we are today?
Is it the banks fault for lending so easy, or our fault for thinking we can live on the never never for ever ?
What was it like in the 1970s and 1980s when our economy didn't seem to be build upon artificially inflated house prices.
I don't want to be unsympathic to all those facing financial difficulties, but one has to take personal responsibilities and one has to be prudent
Or am I missing some basic economics here ?
and by the way, I'm not yet 40 yrs old - so this ain't no "oldie" harping on about the good old days...I've just lived within my means. Prudence maybe an old word - but old doesn't always mean bad !
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I see Brown is off to the Arab States with his begging bowl. Then to China to try and get some more of the money they have accumulated by being allowed to send cheap shoddy goods to E.
They dont have European Directives to stifle their growth. They dont have Health & Safety nuts. They dont have unions.
The dont have socialism.
They just have our money.
We want some back so Gordon can Knit a great big wolly jumper.
You have been warned. The wool is about to be pulled over your eyes. Just before he calls a General Election.
Some will fall for it.
Most will just fall.
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Of course this 5 trillion quid still exists.
It has not dissappeared.
All those folks who sold the American poor those houses have run off with the cash.
Shares have been converted to cash.
All this cash is still around.
It's just that the poor old taxpayers of the world have been left with the debt, thanks to the banks.
Robert, "have let us down" seems to be a bit of an understatement.
"Economic advisors", "financial experts", "finance ministers", "chancellors", "bankers".....are any of them worth a pound of apples?, let alone a bonus.
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One year ago it was projected as a one billion dollar loss
Six months ago it was projected as a one trillion dollar loss
By Christmas it is projected to approach ten trillion
Can we expect a hundred trillion projected losses by next summer ,which would produce a pyramid the size of Giza in ten dollar bills [the eleventh wonder of the world , a fitting memorial to the delusional insane and an alternative fuel suply for years to come ]
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It all started when Pastor Phelps was unconstitutionaly fined 100 million dollars warning not to hurt the annointed ....or else [now apparent.]
The usa government should pay PHELPS 100 million dollars IN PUNITIVE DAMAGES and repent in sack cloth and aaa'shes to avoid the final judgement and wall st be made to eat its golden bull
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#132, Mr King obeys orders. His job is to target inflation. When he looked like he was going to do that, Brown changed the inflation figure to exclude some of the largest household expenditures....
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#95
Sorry, you're right, it was 1981 not 1980. You might be interested in this paper [Unsuitable/Broken URL removed by Moderator]
By the way NHS spending was increased in every year of the 1980's including 1981/2.
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14. At 09:59am on 28 Oct 2008, Andrew Knight wrote:
most bankers put in 100+ hours and despite large losses made by some others make large profits that keep pension funds ticking over.
Working very hard and diligently to administer a fraudulent and highly debt-expansionary system does not engender sympathy. Regardless of the personal sacrifices of individuals you still pertpetrated a Ponzi scheme and it is in the process of a systemic collapse.
57. At 11:19am on 28 Oct 2008, MERITOCRACY wrote:
Money is never lost. It just changes pockets. So where is this ?5000 billion?????
The money was only an illusion created by the Fractional Reserve Banking system. It never existed. It never reflected the value of any real world assets. When you lose it, you lose something you never had in the first place.
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#134 - well said.
I can assure you that there isn't a country to run to, no-one has looked harder than I.
This time we have to stand up for ourselves. In a democracy the Government are FOR the people, they are not THE people.
One day soon, someone big enough to grab the headlines and brave enough to burn his or her own political career will speak out and that will signal the end of the beginning. I am sure of this.
If the BBC had any spine at all they would be looking very hard indeed for this person. I think the coverage will come from Channel 4.
Trust you'll be signing my petition BTW..
GC
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"So with interest rates @ 18% is now a good time to invest in icelandic banks ????"
If you don't mind the risk that when you convert your GBP into IKR you will be running the risk of losing more than 18% in currency depreciation over the course of the year. I would not be happy making that judjement call.
I would however happily do it for you and your money for 2% of your capital and 20% of any profits and no backchat if there are losses on the deal, grow up you knew the risks.
Oh to be a banker, its a wonderful life.
Speaking of which can you imagine if at the end of the film the town all gathered together and handed him a long piece of rope and said "I think you should do the decent thing" It would be a true film for our times.
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POST 139 should start
,"one year ago it was projected as a 100 billion dollar loss"
Its so hard to keep up with the mark of zero's
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Simple, and obvious truths, on the whole:
The mistake of bankers was not: lending against assets that "were not worth the valuation". The asset is only security for the loan - the loan is primarily against a revenue stream (earnings) that can repay it with interest - for a mortgage, that's against future wages or rents.
In the new world economy, our full time labour is no longer required - except for optional services like coffee shops. There is no revenue stream that can be relied upon for twentyfive or more years to pay back a mortgage.
With nearly all money created out of nothing by fractional reserve banking, very quickly, all the debt outstanding on loans exceeds the total amount of money in circulation. So the debt can never be repaid - there simply isn't enough money in the world. Without constantly growing debt levels, the system is intrinsically unstable, and as soon as the lenders who create the money stop growing their loan books, a rapid and violent collapse in money in circulation is inevitable.
Like the blood supply flowing round our bodies, delivering nutrition and removing waste from every cell uniformly, regardless of the merit of the cell, the money circulation is what provides the nourishment to the people in the modern economy. The lenders charging interest are like a heart that requires more blood returned than it pumps out. As soon as it stops manufacturing new blood (new debt) there is a catastrophic fall in blood (money) volume that kills the patient regardless of his general health.
Instead of creating the required money by means of debt that must be repaid, as in fractional reserve banking, we need to create money as value by government distributing a basic level of money to every citizen, and simply creating new money to pay government employees. We are rich enough to do this. Fractional reserves need to be grown progressively until they are full reserves, tapering off the role of bankers as creators of capital.
The national health service has been a huge success by delivering care free at the point of need without paperwork, means testing etc. We simply need to extend such a policy to provide sufficient funds for citizens to meet all basic needs. Many parts of our complex bureaucracy would simply disappear. Individuals would be free to contribute their labour where they felt they could offer the most benefit. This is analogous to the way the open source software movement works. Workers self select to create the software wealth, and are hugely outnumbered by users who pay nothing for the use of the software.
Takeaway: money created as debt must end - it is intrinsically unstable; money must be created by distributing new fiat money to everyone, who will spend it. It's how our bodies work, and it's a fantastically successful system.
Of course there are many many details to be worked out. But it might even mean the end of personal taxation, of specific money benefits for the needy (their special needs are met by free supply). The level of the general distribution would be such that individuals would nevertheless be strongly motivated to contribute their efforts to the general good.
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#138 & 32 - initial comments.
That is simply the most judgemental and selfish thing anyone could say. You have no right at all to make that assertion and I am lost as to why you should wish to. You have no right at all to make judgements on other business just because you are doing OK.
You have also forgotten start-ups. They fail because they are 'bad business'? Not everyone is successful in the early years, not everyone has Dragon's Den funding, all businesses make bad decisions, some firms get involved with lousy bank managers or haven't even got one. Some firms get cheated by suppliers and clients. Some firms get broken into and the insurers won't pay out. Some business owners have breakdowns. That doesn't make them bad business.
I've been in the race engine business incl F1 for the best part 17 years and if ANYONE like you wants to come here and get a lesson on how hard it is to keep the cash coming in when for years your exports were crippled by the pound-euro-dollar USA-Europe-Australasia you can find me easy enough.
Take away the raft of stable macroeconomics as is now the case 90% of UK business will fail THRU NO FAULT OF THEIR OWN.
Learn it in the Thatcher years did you? What was it 'Never mind you, I'm all right Jack', or worse to that effect. You're on the wrong blog.
GC
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The real truth is that the city boys have stolen our wealth - they pocketed it long before this crisis presented itself. Now it has dawned on the bank bosses and good old gordy, they bail them out and we have to pay for it over the next 25 years. It's the crime of the century. That is how it should be reported, the crime of the century. Anyone that has made their fortune needs to be very careful - there will be recriminations when the public get to know the truth and they will.
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good old mervyn king....lets all pull together...we can get out of this mess together....u can earn peanuts while i earn millions..... ive got an inkling whats going on here....the rich get richer and the poor get poorer.
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#158 you make a very good point..some people have made an awfull lot of money here.....lets hope the truth comes out eventually.
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Its time to jail the risk takers who were responsible for our money they lost!
Also, there will be a one-world economy by 2100, globalisation can work in theory but not if everybody is competing with eachother using different currencies.
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> It's the measure of the extent to which the private-sector
> banking industry has rather let us all down.
You're darn tooting, Mr Peston. Instead of the "trickle down"
economy promised by Mrs T, we have the "surge up" economy, where
we cut wages, health, education and pensions to pay for bankers'
bonuses! If we hadn't had these banks hanging around our necks like
millstones, we'd be rich.
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#145 Jim68bob
Good post, good morality, similar to one of mine a few days ago.
I remember one self deluded reply telling me that it was people like me who were keeping the rich in place and the poor poor.
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To: 134. BankSlickerminustheR:
'A few years ago I met a senior Liberal Party politician during one of their party conferences in Brighton. I literally happened to bump into him at the hotel bar and chatted with him for quite some time. He revealed to me the lie that all senior politicians are aware of but dare not raise in public (it's funny how a 'little' achohol loosens the tongue). '
Please have a double whisky, put us out of our suspense, and tell us what the 'lie' is. We won't tell anyone else!
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ericchun-
Sadly they didn't steal the wealth, the wealth was created by borrowing money in Japan and the US at low interest rates and then lending it in the form of mortgages in America , if the mortgage brokers had stopped when they exhuasted all those that could realistically afford a mortgage then all the investments in the form of mortgages would have paid off.
Instead mortgage brokers were paid on commission in America so they lent to anyone, no one thought to check that these new mortgage holders had been fold a fair product that they could afford so the investments were sold on around the world. The future profits were then invested in growing markets around the world
The 'city' in the UK just wasn't aware of the risky mortgages that had been sold on. They were graded as good investments, and the grading of the debt was done by institutions that were trusted to provide reliable information and up until now that is what they did.
For what its worth many banks have laid off staff, shareholders have been wiped out including staff who held shares as part of pensions, bonuses have been slashed.
All of that also means less tax revenue for the UK government.
It's all down to unregulated commission based lending which needs to be stopped wherever it happens in the world.
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"Top financial staff" have changed the whole scene of "haves" and "have-nots" in the past 5 years.
They have put THEMSELVES firmly in with the super-rich HAVES.
And the HAVE-NOTS?.....US, OUR CHILDREN AND GRANDCHILDREN.
Once the crisis has settled down the public will want this terrible injustice dealt with by governments.
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I have to admit I am confused by the underestimate of how much total annual output the world produces.
6x £5,000 Billion (£5 Trillion) is £30 Trillion.
So where is the rest? The USA and the EU produce just over £30 Trillion between them, so where is all the other money?
Either countries are lying or the finance world has forgotten math... both of which explains this situation they put us in now!
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There was a crfacking film that came out called madness of King George, where the what was the mental illness of the King took years to be understood and then healed.
Here we suffer delusions of a Prime Minister in regards to economic reality and hios equals in Europe praising his ideas, the fact that they were Alastair Darlings is obviously irrelevant.
There is no way any new plan by Brown and Sarkovy and the Euro meeting on November 7th being a precursor to tyeh November 15th meeting in Washington will make the slightest bit of difference. America will not prescribe to any European dictate because it doesn't have to.
Why are we wasting our time thinking something will happen with the muppets we have thinking they are running the show?
It may make some squirm but there is already a new world order and China is in the forefront followed closely by the middle East.
We may not understand their culture but we need to look at the principle that if money still is to make the world go around then we need to go to where the money is.
The far and middle east were sophisticated and advanced countries whilst we were deemed barbarians.
They may have adopted the superfiiality of western culture but deep down they know it is always going to be doomed to failure simply because debt needs to be paid back and all we do is pay it back with more debt.
So we need a new G group which reflect the new reality The USA, China Russia and Saudi Arabia. Let the G7, G8 call it what you like poodle around at fancy locations The real talk is now with the G4.
Europe should be their but when a parliament representing its 400+ million citizens can't even sign off their own books for 13 years they don't deserve a seat at any table!
So please messrs. Brown and Sarkozy shut up an let the real players get on with sorting this absolute mess out, perhaps then the madness that has befallen the European leaders will heal as did the sickenss that befell King George.
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#64 "Pockets would be extinct if it wasn't for cold mornings"
And then there are those with large holes in their trousers pockets....
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whats the cost of energy now? lower than 3 months ago..... the energy companies are making a fortune..... the 1 thing that surprises me in uk 2008 ..is how people put up with this situation..... !!!
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You didn't identify the error. You used the wrong number and somebody else noticed the error. There's a difference.
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#82
I agree with your suggestion of a media news blackout. It should have happened weeks ago. However, I'm sure confidence could still improve if Robert were to take the hint and go on a long holiday.
One thing I would like to know is .....who set the terms of two consecutive quarters of negative growth as a definition of 'Recession'?
More than likely economists who have never done a day's work in their lives. It was probably arrived at during a so-called 'period of sustained growth' when the thought of recession was looked on as an impossibility.
In the real world, companies seldom experience continued growth. If every time there is a downturn, hands are thrown up in horror, business would get nowhere. Usually the answer is to knuckle down and put in the hard graft to turn things round.
As long as we are in the hands of the academics, we will have no chance and doom and gloom will reign.
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So, the Bank of England doesn't seem to know the difference between a dollar and a pound...... Oh, Good.
Then we have: 'He(Gordon Brown) has also been at the forefront of calls for a co-ordinated global approach to financial regulation and an "early warning system" to prevent a repeat of the credit crunch.'
Doesn't he read your blog, Robert, or the BBC HYS pages; becasuse if he did he would have known at least 18 months ago that the UK was in crisis and on the brink of recession.
We do not need another committee of over-paid ex-bankers flying round Europe to have meetings and banquets, while not one of them is in touch with reality.
May (somebodies) GOD help us all ! !
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#67 "Now try to imagine how big the spreadsheet would need to be in order to hold a billion!!!"
It takes about a 120 Mb to hold that number as a numeric but a whole lot more if it was the pound sign (an alphanumeric) !! 120 Mb is about what is needed to store a relatively long song with all its trimmings !!
Just thought you'd like to know.
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#78 From what I can gather, Warren Buffet doesn't buy *shares* per se. He buys into *companies* and makes sure that they will become profitable. This is very long term thinking !!
What most people want in the current market is share pricing for the short term gains, *NOT* investments for the long term !!
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Capitalism... Hmm... What just happened wasn't simply capitalism going wrong - it was capitalism with all the controls switched to 'off' and the burners turned to 'high'. (Imagine a steam engine with no governor...)
Borrowing in order to lend. Not a good idea for the banks (undrestatement!); might not be a great idea for governments either, the way things are looking, unless controls are put in place quickly. Banks might be lending, but the money put in place by governments to facilitate this is otherwise being siphoned out by the speculators on the stock exchange as before. It's there, so they grab it.
That siphoning out: Stocks and shares are issued so that companies can raise capital and investors can get a bit of a dividend as a reward for taking some of the risk. OK. But on the stock markets now, things move so fast, like that ungoverned steam engine, things are turbulent and chaotic: Speculators nip in and siphon out some money; the source of that money was the companies and pension funds (nobody minded too much while everything went up, it just didn't go up as much as it could have done perhaps), but now it's actually the taxpayers paying for it, and the funds are diving down and straight out to the megayachts.
Nothing new of course - that's what happened in 1992, slightly less badly perhaps. (George Soros did OK then, too.) But what that basically amounts to is a form of legalised, and often tax-free, embezzlement.
We've got to fix that, before the system can settle down properly. Take the heat out of the system; tax it, abolish tax havens (which really have nothing to do with capitalism and everything to do with greed), and slow everything down.
Shares are supposed to be a long-term investment, aren't they? So what's with this system allowing trades on timescales of seconds?
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From Brewer's Dictionary of Phrase & Fable
TO BE DONE BROWN
=
TO BE DECEIVED
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It's a catch 22 situation whichever way you look at it.
That's probably why economists can't agree with each other.
There are so many variables if one wrong decision is made it could undermine everything else
Those calling for large cuts in interest rates for whatever good it would do if there is already a premium charged on lending forget that banks and building societies etc are relying on savers and depositors to fund other peoples borrowing.
If savers do not get a fair return for their investments they will pull their money out.
Too many are already doing this anyway because they don't trust the financial institutions and the government have not guaranteed all deposits in the same way as Ireland did.
So even less money to lend.
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Taken from Wikipedia:
A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. It has been known to come under many guises. (Sound familar?)
Pyramid schemes are illegal in many countries (Really???), including the United States,[1] the United Kingdom, France, Germany, Canada, Malaysia, Norway, Australia,[2] New Zealand,[3] Japan,[4] Nepal,[citation needed] Sri Lanka,[5] Thailand[6] and Iran.[citation needed] These types of schemes have existed for at least a century.
further in the text - the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses (Really!!!)
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#111 "Is there no representatives in either House at Westminster or in the Royal Family with sufficient moral fibre to set aside vested interest and bring the social/economic truth of this appalling situation to a swift and graceful end?"
Try Vince Cable. At the very least, he's made attempts at describing the situation in its proper terms instead of spinning tall tales about "listening to the people", etc.
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All we are doing by bailing out the banks is prolonging the status quo.
It is clear that the banks looks upon us mere mortals as complete fools.
to have the audacity to still be fighting against the repayment of the blatantly unfair banking charges they have been hitting us with for years and the way they are reppossesing properties just proves their utter contempt for the man on the street.
let them end up on the streets after all this is entirely down to greed, they made their bed.............
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Bail out of the banks this time is probably a necessary evil. Going forward, a fair, just money system is required which means banks only lend out what is saved with them. That means prices rise more slowly, money holds its value and no more boom and bust. Saving for something like in previous times is not wrong, and house prices would be lower to reflect this without all this silly money around.
The UK money supply has increased by more than 100 times since 1963. The same probably applies to the US. No way has population increased by this amount, about 13% in the UK. The banks have lent this new money into existence, and when they can no longer lend and we are all in debt up to our necks, there is a money shortage which is what is happening now. Governments should create new money in line with population, new products, and services, not private banks. The present system requires existing debtors to take on more debt, and new debtors to be found for it to work and is not sustainable.
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#155 Re. potatoes. I told you to save your money and buy fags in Hungary. They cost about 600 forints (about 2 quid) per pack tax paid !! You can then bring them back to the UK and save yourself more than 3 quid per pack !! Especially if you are a heavy smoker !!
How's that for arbitrage ??
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Please will someone give me an answer to a simple question. If the government is going to borrow by issuing gilts, who will have the funds (and the inclination) to buy them?
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#125 They sailed off with the Owl and the Pussycat in a pea green boat !!
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Funny that, but I thought the Government were encouraging people to shift their assets around.
'The FSA will only guarantee the first 50 thousand of your savings and investments with a financial provider.
After that you are on your own mate'
So each week a few more shares, savings and investments get moved from the Banks to elsewhere to get a better level of guarantee.
I suppose there might be a few of the not-so-high value clients doing a bit of that.
Strange that the Government never considered that shifting and relocating assets might eventually be a problem for the highly leveraged Bank deposits.
They must have really thought that one through.
Thus illustrating the adage
'A government is only as clever as its ability to think.
If it can't think, don't be surprised if it acts irrationally'
Or as Descartes might have said
'I think therefore I am,
but If a Government can't think,
therefore it not is'
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Robert.
Reading your reports makes me realise what a big void there has been on public awareness of what happens in the financial world .
It must be the only industry that has not been scutinised by jounalists in the past.
When explained -it stinks.
When things have stabilsed a bit, could you work for the FSA. It would make me start to trust the system again. Meanwhile my pennies are going into NS&I.
keep up the good work
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Now this is a 'bail out' worth looking at
[Unsuitable/Broken URL removed by Moderator]
While mandleson whoops it up with his rich 'friends' all over the world (now mr billionare, what first attracted you to the easily influenced, social climbing, poltically powerful mr mandleson?). The tories are prosposing solid policies that can put money in the pockets of small compaines/sole traders across the country. Re-vitalising small business and the entrepenourial spirit and help to make local communities sustainable, under the control of the people who form them - not 'big brother'.
Unlike the Labour proposals to bring forward infrastructure projects that will be performed by foreign owned, foreign run (for tax purposes) multi-nationals, who will source their materials abroad, subcontract to other foreign companies and use temporary migrant labour to actually do the work... so just exporting more of our tax pounds...
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#130 Or those who earned enough abroad to pay off their mortgage and fund a reasonable, *NOT* extravagant, lifestyle !! A curry dinner for the family at the local Indian is helping the local economy, not an extravagance. Fancy cars, especially Chelsea tractors, *ARE* extravagance !!
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post 110, bang on mate !!! I dont understand why there has been no jailiings over this, the biggest robbery in human history.
Never mind come the revolution,,,,,,,
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#134 What you are saying is that if they don't hang together, then surely they will be hanged individually !!
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Inspite of all the worldwide governmental support given to the banking industry by way of loans and guarantees, they still will not lend to each other and therefore loans to the man in the street or small business are shrinking.
Interest rates appear to be of secondary importance to the availability of loans. If the banks persist in restricting loans in this way, a recession becomes a self-fulfilling prophecy. A shrinking housing market beset with rising repossessions, small firms going under as banks withdraw their overdraft facilities, job losses leading to reduced retail sales - all combine one on top of another to create a recessionary atmosphere or worse!
But life has to go on, people have to eat and live somewhere. The actual cost of building a house will not drop below a certain figure, lets say max 30% below the market level a year ago. What is missing is buyers and why? because without a 25% deposit they are unable to get a mortgage. Obviously, the lenders have to return to sensible rules - like not lending more than they are taking in as savers deposits, like not lending more then 2.5 - 3 times joint income, like requiring perhaps a min deposit of 10% - all rules in force 40 years ago when we took our first step on the home ownership ladder.
Instead of doing their bit, bankers are refusing to ease the credit crisis and release funds now guaranteed and made available by Government, instead they are increasing their liquidity by restricting loans but charging highly for those they are making to ensure profits for their bonus' and shareholders.
Is the Government complicit in this strategy now that they own or guarantee say 50% of all worth in the UK banking world?
I fear that the CDS problem is worse than we are being told and that this is the real reason behind the race for liquidity by our bankers, so that they can ride out the recession (or worse) which will hang around us for the next 3 or 4 years.
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I wonder what our situation would be now if we had been part of the eurozone. I guess no-one has dared tell us that we might have had some protection against some but not all of this turmoil.
Too big a hot potato for any honesty to come out and certainly not one for Eurosceptics to even consider.
All those expats who now get their benefits abroad must really be wondering what they have done. House prices have tumbled in Spain and other EU countries too.
All those holidays to Europe this summer could have been so much cheaper!!!
No good jumping up and down saying the few goods we still produce will be cheaper to export as I guess there are few customers out there.
so what have we gained from staying out?
Guess we can still say we have a special relationship with the US., so that is OK they will look after us!!!!
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Robert,all
you might want to have a look at the DAX in Frankfurt where the VW shares are running mad. In my words, people have heavily speculated on a falling market. When Porsche announced to have secured more than 70% of the shares, it was easy to calculate that the dealers were naked emperors indeed. In my view a didactic play on how markets (can be) are driven by forces completely detached from reality and then start bouncing (up here) when a reality check applies.
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Robert
Can you explain please, who exactly are these creditors to whom the banks were owing £740 billion until us good old taxpayers stepped in to bail out the banks and allow them to pay their creditors?
Why not pay the creditors directly and carry out a controlled collapse of a few of the weakest banks who made such a mess of the situation in the first place?
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I did find GB's comment of 'IF we get out of this' yesterday extremely disconcerting.
Not exactly the statement of a man that is confident he knows what he is doing.
Now he's off to pursuade the Saudis to lend more money to the IMF.
Strange thing for him to do.
They haven't taken any notice of him previously so perhaps there is an ulterior motive.
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2 trillion spent and by the bank of England?s own admission the problems are probably not solved. Perhaps the scariest graph in the bank of England report was that of savings against borrowings, the correction of which will require a significant adjustment in the mindset of Joe public. This is really the bank of England?s message to us all that whatever it is we want then we better start saving for it otherwise we may experience the rather painful experience of being turned down for credit.
Where does that 2 trillion come from is the question though? Some will come from investments by pension funds, some by governments with surpluses and some from the oil rich countries. These are not inexhaustible supplies of funding as Iceland is finding out and the question must be what is the likelihood that we might face the same fate if our government keeps borrowing? You only need to look at the US treasury auctions to see even the mighty US is beginning to find it harder to borrow money and the US TIPS are signalling a heavy penalty for the US consumer.
On top of the banks not lending, currencies diving we hear today of a new threat with letters of credit not being honoured between banks. John Dizard in the Financial Times has the story today, but it has been delved into recently by Bloomberg, FTalphaville, Calculated risks and Yves Smith. Can we afford to allow trade to be halted like this, what human cost will be the result of rice rotting at the docks because shipping agents cannot find credit?
Quite possibly the speed with which this crisis morphs and changes will make the bank of England report out of date by the end of the week. While politicians talk about regulation and bank capitalisation and pat themselves on the back, the crisis moves on to insurers, hedge funds, auto manufacturers, shipping, currency carry trade unwinds, emerging markets. Massive government action seems to only slow the decline for a brief period. Possibly with the exception of Meryvn King and perhaps the FSA those in charge do not appear to have a clear picture of what?s going on. Based on personal knowledge sales have tumbled during October across a range of businesses and the economy is now in clear difficulty, while the government is still concentrating on banking.
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Dear Mr Croft
I would have signed your petition, but I noticed that the website did not have one of those nice little lock thingies on it. I am a little paranoid about things like that.
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the far reaching problems that are now globaly affecting the markets , banks and governments is planned and will continue to develope untill there plan is fullfilled.
who are they?
they are those who will profit from unsettled times with the human race, they know our weakness and they are using it to break us.
they are soon to be our overlords and succesive governments around the world have surrendered to them.
we know them as aliens and aliens they are their goal is domination they want our planet ready with a built in slave sector, they already control the media, major governments and big businesses.
our only hope is gone and we are lost we have to endure this crisis to survive, ignore the government they have sold us out and thus we need honest leadership a call must go out for a hero to lead us from the jaws of dispair and doom and to start the fight back.
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People,
I am sorry for those hardworking people who are going to lose their job/pension/investments/business but there is an extremely bright side to this story.
There was a big problem (that will hopefully lessen) prior the housing crash: bright aspiring young people without parental support were locked out of the housing markets.
Now at least my sister and I (Doctor and Engineer, Cambridge/Imperial) have got a glimmer of hope of not being trapped eternally in overpriced rented accommodation.
I am no socialist but the gap between rich and poor was ridiculous and the system is responding in a rather brutal way to address this issue.
It is high time the Government realises that housing is a special class of asset, one which should not be viewed as an investment. I struggle to understand how the government doesn't clamp down on this.
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#7 #57 and others
If I'm following this correctly
- some of this money is just disappearing, as banks seek to reduce their capital ratios
- some of the money is being repatriated to the likes of Japan as the carry trade unwinds.
- some of it is money that used to be the £740billion wholesale funding of the banking system that is now being withdrawn by its owners (and put into Government bonds instead?).
If so, each of these has different effects and requires a different response from the Government. In the case if the reducing capital ratios, this is having a large and very sudden deflationary effect, far too sudden for the economy to cope with. So the Government response has to be counter this deflation by increased borrowing (or just by effectively printing money).
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What surprises me is how sanguine some - if not most - commentators are when discussing the way out of this astonishing turn of events. My simple, layman's mind + common sense tells me that, surely, we must be facing far worse than a recession, or 'mild recession' as some (so-called) experts keep telling us? The politicans seem to be worse at concealing the truth (no surprise there then) and have only just allowed the word 'recession' to be used in company. If that's the case, I shudder to think just how bad their planning is to get us out of this mess.
The whole global financial-economic system seems to be floating/floundering in wholly uncharted waters. I can't figure out how we're supposed to sail through this storm without one helluva lot of countries/citizens getting badly hurt. The numbers being bandied about defy comprehension; were the numbers so extraordinary in the run up to the Great Depression, I wonder?
I'd rather plan and be prepared for the worst than to whistle in the dark and pretend that things are not as bad as they seem. Certainly, I don't trust the politicians to tell it as it is.
So, Mr Peston, just how bad is this? What indeed is the worst case scenario and what steps should we be taking as a country to prevent us succumbing to a runaway sequence of bad events?
I've read some credible reports saying that if we do experience a catastrophic turn of events (still a distinct possibility we are hearing from some quarters), then a country like the UK can only operate 'normally' in terms of essential supplies like food, fuel etc for a few days before the situation has the potential to get out of hand.
I get this recurring thought that our politicians are not really on top of events; they're always reacting; they can't/won't scanario-plan forward; and if the lid blows off the pressure cooker they don't have contingency plans for dealing with the consequences.
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One thing might calm the markets.
A clear indication of if any compensation is payable to Bradford and Bingley and Northern Rock shareholders.
And an indication from the Gov't that they do not intend to nationalize housebuilding, any further banks or other companies.
Until then Shareholders of all types will remain nervous and indeed absent from the Uk stock market.
Proper restrictions need to be placed on shortselling (the nationalizers friend).
A proper pay rise for the Public sector, one in keeping with the nearly twelve percent inflation rate would also help the economy.
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Just a few ideas for Chairman Brown.
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So Santander raises profits by four percent.
Hmm, me no believe it!
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"From the late 1990's to today, our banks increased the multiple of what they lend compared to their capital resources from 23ish to 33ish.
Or to put it another way - "
- Robert Peston
Or to put it another way, as all financially literate readers already know, 33:1 leverage all but guarantees immediate insolvency in a credit freeze and asset valuation crisis.
The maximum safe leverage in conditions such as this is 12:1. Experience has shown the truth of this well enough that it was once a post Great Depression regulatory requirement in some financial centers before it was downgraded to a "guideline" and this credit bubble began.
The only way out is deleveraging, which means raising twice as much CASH (not issuing new debt) as all British banks have in their capital reserves, to finance loss provisions and letting those who fail to do so, fail. This means a firesale of assets as soon as possible before prices have gone completely off the cliff.
Unfortunately the government's present course is to procrastinate, issue new debt into a saturated market and default through hyperinflation.
The only way to survive 33:1 is to turn the 1 into a 3 right now.
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"It's equivalent to about a sixth of the total annual economic output of the whole world ... we as the taxpayers of the world are funding our banks to the tune of one-sixth of everything we produce" - What's special about the annual output? You could just as easily say "It's equivalent to about a twelfth of the total economic output of the whole world every 2 years ... we as the taxpayers of the world are funding our banks to the tune of one-twelfth of everything we produce".
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Now here this:
NY public worker pension fund has lost $32billion dollars (20%)
Quote : '' Payouts will not be affected''
Have you ever heard such nonsense? It now at a stage where they know the people beginning to withdraw their cash rather than just the margin calls
BTW
Look at the DAX today, Germany continued to trade VW and Porsche?
VW is up by 85%, another great Fraud
Mind you the funds that shorted VW (and there were lots) are all probably be bankrupt tonight
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The big question is where will banks look to reduce their lending. The hedge fund sector has been the first casualty - the impact has largely been on equity values. Private equity sector will be next: again the impact will be on equity values.
In theory it should be possible to deleverage in these two sectors without inflicting major pain on the real economy. In practice, if deleveraging hedge funds and private equity funds creates a new round of bad debt, then the real economy is at risk.
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A question I would also be asking is how much of Japans FX reserves have been bought today to ensure a rapid devaluation?
Stamping out a bush fire during gale force wind comes to mind
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Robert,
One sixth of all we produce in a year is one sixtieth of all we produce in ten years. Which is probably a more realistic and less scary timescale.
I am apopectic over the treatment of Lloyds TSB shareholders since you first announced the merger proposal. My greatest concern is something prudent people have been saying for donkeys years - if you are going to take something over be sure to undertake proper DUE DILIGENCE. In a normal uncomplicated bid with transparent and meaningful balance sheets it can take weeks - here we have a "hurry up offensive" for a hugely complex merger with the overhanging threat of lurking evils in HBOS opaque books, of the kind that sent the share price plummeting by almost 90% in a year. It has almost done for LLoyds too - the share price halved from the time of your announcement to now. What does the Board of Lloyds know that we (the shareholders) do not know?
It is said that it could be the deal of the century. If so, why didnt the Board of HBOS make a fight of it? Why has the Board of HBOS got their parachutes ready?
Of course, I sense the stench of people toadying up to Gordon Brown, who will probably finish up with 45% of the joint bank. That is bound to mean drastic dilution for Lloyds TSB shareholders who have been told ad nauseum what a prudent and well financed bank we own.
We have been told nothing about the bid as of now, but apparently we are soon to learn that we will be asked to vote in November (that could be in four days time) with completion in January. If Mr Daniels is the genius that his approach suggests he might be I will be happy to eat my words. If not, no doubt he will eventually be found at Heathrow boarding a plane back to the States.
As of now I wish he would drop the bid, say thanks and no thanks to Gordon Brown, and get on with running our bank. Do you know something that I dont please?i
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$5,000bn .....this is just the start!
We've not nearly seen the end of the unwinding of CDS derivatives market yet.
When these insurance contracts were drawn up they were only risk assessed at default ratios of a few percent based on (historical worst case) data from a few mildly recessionary periods. However, we are about to enter a very deep recession (if not a depression) whereby the default rates will be huge. The companies that have taken on these huge risks/liabilities do not have the capital to cover the losses. It will therefore create a lose/lose situation for both the insurance companies and the banks (who thought they had insured their loans). The first dominos have only just begun to topple. More big banks will require bigger bailouts (the smaller ones will just fail) and some very big insurance companies will be allowed to fail or to will have to be bailed out (eg AIG).
The CDS derivatives market is completely unregulated and was last estimated to be $55trillions in value.
This is just the calm before the storm (and its not just schadenfreud).
http://www.financialdirector.co.uk/financial-director/analysis/2229124/murky-game-pass-parcel-4311313
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#197 "what human cost will be the result of rice rotting at the docks because shipping agents cannot find credit?"
Well, rice will not rot on the docks. Today's FT reported that Thailand will do a barter trade with Iran - rice for oil !! In the coming days, we may see more of this bartering going on. The whole world is tired of being taken for suckers by this credit "funny money" game and they want to exchange *real goods* for *real goods* !!
The reports that Letters of Credit have not been honoured is just more results of this credit game. In the old days, Letters of Credit from reputable financial institutions were as good as, if not better than, gold !!
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#201: "In the case if the reducing capital ratios, this is having a large and very sudden deflationary effect, far too sudden for the economy to cope with. So the Government response has to be counter this deflation by increased borrowing (or just by effectively printing money)."
You have the essence of it, but you cannot materially slow this deleveraging. It is too great, as elsewhere our banks have outgrown the country. Slowing it in the private sphere by issuing Treasuries simply levers up the public sphere and places the government at risk. This is even worse, as it would compromise its ability to perform essential functions due to the much higher interest payments it would have to make. We cannot afford this in a depression. Printing would be even worse. Repaying in proportionately devalued currency is financially no different to default and carries even greater political risks.
The only way to make it through is to raise capital not by issuing more debt but through massive asset liquidation. Pennies in the pound sounds like a bad deal, but unlike Iceland our financial companies and government have enough to sell. If we do not, we end up in the same boat, with the added disaster of being too big to bail out.
We need to attract capital flight from other countries. That's the only way to win.
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#200
You are at the heart of the problem! The pyramid has finally collapsed. The money that is being paid in now is not to solve the current problem, it's to repay the original debt (those at the top of the pyramid - the elite). Don't expect the bail out to solve the current problem, it wont.... and (UK taxpayer and pension holder) don't be falsely lured into further debt and thus transfer more assets to the elite! Gordy has tranferred enough!
So.... looking forward, what do we do about the provision of housing which started this crisis?
Here's an idea...
How about we create a "not for profit banking system", built on sound principals, highly regulated and in the ownership of all of the citizens of the UK, not the elite! Somewhere where we can safely save and borrow to fund the longer term things in life, like buying houses when we are young and providing for retirement when we are old. A mutual deal, we help each other out. WOW this sounds good!
And! ... it could fund business too!....
It's time to rethink, this system ain't working!
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#203 "A proper pay rise for the Public sector, one in keeping with the nearly twelve percent inflation rate would also help the economy."
And a proper decimation of Public sector numbers in keeping with private sector employment rates/efficiency will help fund the pay rises !!
Extermination of useless quangos will go some way towards minimising government spendings and, hence, borrowings !! Wiping out the "Departments of the Bleeding Obvious" and spin doctors from various ministries will go a long way towards that end, too !!
When we have laws that insist on "may contain nuts" printed on every packet of *peanuts*, we've definitely gone too far !!
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193- timetoponder:
"House prices have tumbled in Spain ....."
If you own your house outright then the price is not necessarily that important :o) Especially if you have enough land to grow what you need.
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RP: "Which is to say that the collapse in price of collateralised debt obligations - and all the investment doo-doo created by brilliant bankers that put us in our current hairy predicament - is yesterday's story."
Wishful thinking, Robert! I don't think that topic is off the headlines for long. There is more to come, I'm sure. US house prices continue to spiral downwards and the write-offs from the British house-price crash have not even kicked in yet.
RP:"Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001."
Correct, and that is why it is GOOD NEWS that they will reduce lending. Otherwise this total over-borrowing madness bubble would inflate further. And where would the money for such an insane move come from? Our own taxes!
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Oh hey, it's nice to see that Gordon Brown is concentrating on the really big issues like criticising Jonathan Ross and Russell Brand over some silly prank call they made on air.
I mean it's important for the PM to be seen to be acting on behalf of the taxpayers and it's not as if there's anything else that needs his attention right now is there?
Oh wait, yes there is, that's that massive cliff that the economy's tipping over.
War criminal Tony Blair only got a job for JP Morgan when he finished his time at the trough, nice to see that Gordon Brown is already feathering his nest with the 3AM Girls.
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#157 What was it 'Never mind you, I'm all right Jack', ...
While I agree we all need to have a sympathetic understanding of the problems and plights of others in what is going to be a very difficult situation, it may be that the above sentiment dates from rather earlier than the Thatcher years, spoken, if I recall correctly, by Ian Carmichael in the 1959 comedy film "I'm all right Jack".
As I recall, neither the unions nor the factory bosses came out of it well, the scenes depicted being a little too near the truth at the time. The film was a very funny parody of class attitudes, dealing with attempts by the managers to introduce time and motion studies to improve efficiency. The two sides were depicted by Terry-Thomas and Peter Sellars - I'm sure you can work out which was which. Watch it if you get the chance.
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# 175,
Ish,
Buffet does a bit of both! His Berkshire Hathaway Fund is so big he struggles to find anything to buy, so he has tended to buy entire companies recently. Historically, he's bought great brands where he sees long term earnings growth, eg Coca Cola, Gillette etc. He does also buy shares. He put in $10 billion of his own money to Goldmans, and $3 billion into GE.
Regarding the short-term/long-term share price issue, anyone who buys shares for short term gain is very unlikely to make money. There is almost a 50/50 chance of winning or losing on any time horizon up to one year. Once you go a bit further out, there is a statistically significant likelihood of winning (over, say, at least a three year period). That doesn't mean sitting on the same stocks for a long period. The portfolio can be turned over, indeed should be as and when the economic cycle revolves.
WB's reasoning behind buying shares now contained some interesting info, admittedly over VERY long periods. He pointed out that during the 20th century, the Dow went from 61 to about 11,000 (with a low of 42 in 1932). During the century there were two world wars, the Depression, a dozen recessions, various other wars, a flu epidemic, and the resignation of a disgraced President. he didn't even mention 9/11 and the market drop immediately after that. He also pointed out it was possible to have lost money, by entering/exiting equities at the wrong time. So, equities must be seen as a long term investment. There are easier ways to make money in the very short term. Betting (I prefer football for this one!) in a disciplined way is actually more likely to generate profits than day trading equities.
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212-BankSlickerminustheR:
"$5,000bn .....this is just the start!
We've not nearly seen the end of the unwinding of CDS derivatives market yet."
But we've seen the start - which gives an indication of how the game is to be played out. The Lehman brothers CDS business was "apparently" no big deal. Why not?
My guess is that the bets that went bad were covered by Governments borrowing money (to be repaid by future taxpayers).
The Financial Services "industry" has lost a fortune by making bad bets and the world's governments are busily borrowing from future generations of taxpayers to pay off their gambling debts.
It can't be too long now before those with any money left realise that these governments themselves may not be such a good bet either.
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# 212 bankslickerminustheR
Clearly a man (I assume) after my own heart - check out my post at # 202 above and elsewhere.
I'm in that group of people which has a profoundly ominous feeling about the situation we find ourselves in. My view is that we've barely seen the tip of this iceberg. We're still all sailing along, listening to the band, moving the deckchairs about a bit, telling ourselves that this won't be as bad as this or that previous 'downturn'.
Meantime, the numbers are mind-blowing; the system is more fragile than it's been in the history of mankind; the system remains full of 'toxins'; some nation states are in a dire state and there are huge, latent geopolitical tensions; and most alarming of all, our political masters are proving themselves to be neither competent nor trustworthy. It's the latter attribute - or lack of it - that so concerns me.
So, as an ex-military man, I'm preparing me and my family for the worst; I tell them it's like an insurance policy. I hope the worst doesn't come to pass; but I intend to get through it if it does.
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#215
love this idea - but there is a snag.
Such an institution would be so popular that it would never be licenced by the State.
All monies belonging to Joe public would rush into it, leaving all the state owned banks bereft of liquidity!!
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#214 "Printing would be even worse. Repaying in proportionately devalued currency is financially no different to default and carries even greater political risks."
Hmm. Yes it's risky, but as we speak deleveraging is greatly reducing the money supply, so boosting it again through printing money could (if carefully done) balance things out.
The currency has already devalued itself to a large extent. It's now at approximately the level it would have been if all this financial nonsense had not happened. I'm not sure why we (UK) should feel we need to bail out exteral investors who should have (and perhaps did) realise that Sterling was overvalued and would eventually fall to more reasonable levels.
Anyway I was thinking on a global level. All Western ecomonies should inflate to counter the global deflation the global banks are now engaged in. So perhaps we could all print together?
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UPDATE, 11:58AM: It turns out I have identified an error in the Bank's Financial Stability Report. It said, on page 38, that as much as £5,000bn had been made available by governments and central banks since April to support wholesale funding of the world's banks. However the Bank now tells me it meant to say $5,000bn (dollars not pounds) - which is quite a chunky difference (as of today's exchange rate, about a third less).
To paraphrase the late Senator Everet Dirkson; a trillion here, a trillion there, before you know it, it adds up to real money.
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from Reuters:
"Credit default swaps on Goldman widened 15 basis points to 310 basis points, or $310,000 per year for five years to insure $10 million of debt, Phoenix Partners Group said. The cost for Morgan Stanley widened 15 basis points to 415 basis points."
ie: 3 to 4 percent-ish p.a. just to INSURE any money lent to them? Or is it odds of at least 7-to-1 of them going bust in the next five years?
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#225: Deflation is a side effect of deleveraging in the financial system. The financial system cannot reduce its gearing without deflating in the short term. We need it to happen, otherwise even small falls in asset values will be enough to destroy all bank capital. That day is not far off now. 33:1 is as bad as a lot of hedge fund gearing (failed Carlyle Capital Management was 32:1 mainly invested in AAA rated conforming mortgage securities), and that's in your high street bank.
If you print money, you are not deleveraging, you are adding a source of instability to a highly leveraged system. Global printing would leave no safe haven. On sensing it, those with free capital would convert what they can to hard assets and sit on them for generations while the global economy burns itself out in the first years. That is a recipe for disaster and neofeudalism.
Just accept the short term pain of deflation, which naturally punishes excessive risk taking and rewards prudence. It is the lesser of two evils.
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Do you guys really think there is no money left in the world. The ones with it are not stupid they are biding their time. The banks will start pushing debt again fairly soon. There are moves already. The situation is typical of a market forming. One side bidding too low the other too high. Give it time and the two sides move together. And trying to model anything on the 1930's is a waste of time. The data is not statistically sound, it only happened once. The situation is different now.
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I'm pleased to hear the BofE speaking out about the problems we will all be facing now the banking system is bust. I do remember the govenor saying earlier in the year - about the same time as the local elections were being held - that the credit crunch was more or less over: I did not believe it when he said it, in fact he sounded like a fool, so I'm pleased to hear a little reality in the comments issuing forth.
I am dismayed at the ability of practically all the relevant bodies to have insight after the event and absolutely nothing to say about the impending doom beforehand. We seem to have been surrounded by organisations which did not dare look ahead when it would have been useful to have done so, but which now feel obliged to tell us how bad things are going to be.
I am reminded of the recent, unconnected, story about violent crime figures. Sir Ian Blair received much praise for having reduced violent crime nationwide. Now the police admit they have been recording violent crime incorrectly and the figures should have been much higher - co-incidentally after the man has gone. Has spin become such an overused method of delivering facts that we are really no longer able to draw conclusions of any kind?
Presumably the rightness or wrongness of what the institutions are now doing "helping" in the current financial mess will only come to light in several years time when some of the facts become actually known. Even with all the news coverage and analysis that is going on, I still feel uneasy about how this situation has arisen and how my money is being spent on a solution before I even earn it.
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Tough situation, but, I consider that there is other point necessary to add up. UK must limit the acquisition of British banks for foreign banks. All bank with headquarters abroad ALWAYS prioritizes its homeland albeit the name of the bank in the third country be different, and the worst is when that bank must respond before a crisis like this.
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What a rotten day.
Got a puncture so struggled with the tyre levers on the suspension.
Differential making a racket so filled it with sawdust to cover up the racket for the time being. We needed to do it otherwise we can't sell the lorry in London.
Won't be long now we hope.
Put some money on an outsider in some steeplechase or other to offset our travel expenses.
No AA out here and no Halfords to buy parts.
Asked the guys about their hard posteriors but all I could gather that we should go to the printers in Vienna for a few cushions
- lost in translation probably.
All in all a lifes experiences.
Settling down for another cold night
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You heard it here first
God has intervened and the Madonna is taking over in Argentina - a test run I suppose.
This hand of God will reverse the laws of physics eg up will be down and vica versa or something like that.
Not much good at Fiziks but you get my drift.
SV Kapfenberg v Rapid Vienna
Set off immediately for the service in Austria on Friday evening to thank him personally.
Cripes he works fast - even the magpies are on the way up not down.
Question -Is Vienna a free capital or do they have a congestion charge??
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Dear Mr Moderator,
Can't sleep cos we're going hell for belt buckles towards Vienna.
As you read ? all ?? our blogs then you are the best informed thingy in the potato crisis.
As M is in Argybargy then you have a go at Brazil and work your way northwards.
QED
Good night,sleep tight, don't let the neofuedalism bite.
PS Can you make Hereford United go up a tad to prove yourself a Jeddi.
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# 111 Guy Croft,
You're nearly there, you've nearly hit on it.
The media, the gov't and all politicians are controlled by hidden hands, that's why we will never, ever get any truth out of them. The big question is; who owns the hidden hands, who are they, where are they??
The owners of the BoE are those hidden hands, make them show themselves, that would be a start. Silly petitions mean nothing.
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If anyone cares to try to refute the logic of this I wiould be very happy for them to try to do so.
The only possible option left open to this govt now is to print money over the next 2 or 3 years and let inflation rip to maybe 15% or so , increase iterest rates to the same level and allow wages to rise fast to meet the falling asset values.
This will have an inpact on the economy in a different way but the end game will be the same , only the perception will be different.
House prices will not fall as fast because incomes will be rising to cover the multiple gap. sterling will devalue sharply as it iss now, which i believe is the mraket anticipating the printing of money.
Higher interest rates will appease the investors who are withdrawing capital, the pain be real and the value in real terms of assets will still be falling to about 35% to 40% of the peak. But the headline nominal value will stop falling as fast.. This will also devalue sharply land and unstarted housing projects in real terms and in the end will save most house buiders from going bust because there will be a faster start to the housing market.
Let wages double by printing money and the debt owed will be devalued too and investors will start to look at the manufacturing base again as a place to invest.
But buying those foreign holidays and luxury goods from abread will be well down and others, those with larger assets will see the value of thier waelth drop significantly whilst the poorest weill actually feel better off.
I think Iceland has realised this already and kick started the process by raising the interest rates so sharply.. expect the printing of money and inflation to kick in before christmas..
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#236, what about those of us who did not do stupid things with our finances, and I might add, who fund the banks and government? Do you expect us to stand by and take one for the team? Deflation destroys imaginary wealth, inflation destroys real wealth, anyone with net cash knows it and will do their best to get their money to safety. Capital will flee and the stampede for the exits will be a rich source of unintended consequences.
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Oh What a Lovely War
When the world suffers a major recession war often results, this tends to turn the recession into a boom as the reconstruction needed at the end of the war and the expenditure during the war kicks in.
The population accept the hardships brought about by these factors, ie little or no personal consumption, because they believe in the threat posed by the "enemy".
I am not advocating a conventional war as a way of getting of the current recession but I am advocating an unconventional war.
We have a war to fight over energy.
Whatever your beliefs over global warming; it is clear that fossil fuels are in decline and that the availability of energy is going to be a major problem in the next twenty years or so.Even nuclear is not the holy grail as the supply of fuel for that is far from unlimited.
Fossil fuel is the enemy
The UK government is intending to spend it's way out of this recession, a number of economists believe that this is a dangerous idea. Should the government simply fire a shotgun of money at the problem it probably is a very dangerous idea.
The desire to be popular means that money is likely to be spent on projects which make people feel good rather than those that will provide a financial return in the future.
They are most unlikely to include any serious belt tightening by the population at large and particularly those unproductive but capable individuals that currently live off the rest of us.
I suggest that the government target all of their efforts on the development of a diverse renewable energy infrastructure.
I suggest that we effectivly declare war on fossil fuel. We make this a popular cause which will capture the countries imagination.
This expenditure should be targeted at all renewable sectors, from local to national.
If the population know what they are fighting for they will put up with the "privations" of war.
It will also save us a fortune in foreign exchange.
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Some very amusing posts, and some plain strange ones.
I think everyone knows if you want to have high Inflation (officially) you have to have a Labour Gov't.
Its their job to carry the can.
Last time it hit thirty percent (1970's).
If there are any conspirators watching, I'd rather like the old pounds shillings and denari back.
Decimalisation is very boring and takes a lot of the interest out of money!
Modern computers could cope quite easily with the 240 pence to a pound, twenty pence to a shilling system.
People are quite clever really and would have little trouble switching back.
It would be nice to see the old half crowns again....
Nostalgia!
Anyway, why is Santander still standing?
Hasn't its property exposure caught up with it yet ?
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236
This will, of course, be the result.
Just remember that you are doing what governments have done for the last 3000 years which is to steal from those who save by debasing the money in which they save.
Next time round, and next time will be worse, they may be a little smarter
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We could revalue Sterling,
one new pound equal to one hundred old pounds.
Of course this would mean dividing down everyones savings, debts etc.
And prices could be divided by eighty times, making goods more expensive of course.
Much better system.
Coins do not wear out quite as fast as notes, and credit cards may well be going the way of the dodo.
(Dodo - an extinct Bird)
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#235
Some of them met on Oleg Deripaska's yacht off the Corfu coast in the summer.
#236
The only real option to purge the global debt, is to go for inflation. I cant see any other way.
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#219, right on!
One thing I do like is the easy way anything Brown says gets straight on the national news.
But unfortunately he so rarely says anything worth hearing. An exception lately was when he, as the press like to say 'called on' oil companies to reduce the cost of petrol when the oil price dropped. It happened. That's when he releases a statement or so forth.
When he's interviewed he's absolutely hopeless and always ends up getting defensive and tries to shield himself by rambling on and on - in his unique unstoppable way - about reforms and giveaways and other unrelated guff.
But if I had his kind of clout I'd be saying a lot more. For example how about he say today:
"I want an immediate end to the repossessions, insolvencies and foreclosures. There has to be a better way to run a country. Those practices belong in the Middle Ages and are the worst fallout of usury and have no place in a Christian society"..
And tomorrow:
"I am imposing a national 50mph speed limit to conserve stocks of fuel"
Later on in the week when the trivia has been dealt with he can talk about really meaningful things like Ross and Brand.
GC
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Interesting that someone referred my previous post to the moderators (wonder what they will decide).
It contrasted the hopelessness of labours work with business to the clear, specific policy being presented by the conservatives.
If the lefties say they don't beleive that the tory have policies it will only be because the lefties have their fingers in their ears and shoting 'la la la la la'.
Should the posting not be reinstated, I will refer to it on all future occasions as a demonstration of the wilful ignorance of the left.
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all this carry on of debt in unimaginable amounts is starting to get boring-we all know that no balance sheets will appear, no heads will roll, and no politician will tell us the truth! Nothing new there then!
We, the people, are not deemed capable of understanding, and our nanny state is giving is all cookies and milk with a pat on our heads. Is it any wonder that a sense of responsibility is not common in our society when those that obviously control everything don't have it either!
Anyone would think our government are avoiding us-especially since GB's idea was supposed to sort out the entire world! Isn't that megolomania? It's about time we weregiven the pound of flesh we glamour for- but would we have a government left I wonder?
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For Adam C, "the Conservative government in the 1980's finally stopped the rot by reducing spending and increasing taxes", the Thatcher government did NOT reduce spending per se, it simply shifted it. Instead of paying to support industries (which at least guaranteed some return from making a product and tax payments from workers) it ended up having to pay massive amounts of money out in benefits to those who lost jobs, and in other ways as communities collapsed and crime increased. Like PFI it looked good on a balance sheet, but the totality was never really assessed. The creation of a "professional" unemployed underclass is to a great extent one of the legacies of Thatcherism that people don't like to talk about. The constant attempts to re-define unemployment were another result. The Economist, a magazine noted for its neo-Marxist stance, noted in early 1988 that British government statistics for the unemployed were not reliable, they had been changed so much.
Another problem was the government's shifting of debt from the public to the private sector, i.e. taxpayers. The debts of public corporations would be soaked up in penny packets by masses of taxpayers cum shareholders, who would then have to bear the burden directly in the event of the business making a loss. That some things might be better run as services was not considered. Things like local water services had been public utilities since the Victorian era, and for good reasons.
Re tax reductions, a Govt. minister even admitted on the BBC that the reduction in income tax was covered by increases in VAT and other indirect taxes. As he said, people don't notice VAT on goods they way they notice the chunk taken out of their pay packet.
To reiterate, Thatcher did not stop the rot, she papered over it, quite sucesfully. The past thirty years of governments in the UK have followed in her footsteps and deliberately run down the public sector in favour of the private, which is why the UK now finds itself with record levels of personal debt and little or no infrastructure with which to deal with the coming depression.
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How many depressions/recessions have there been since we started bartering all those millennia ago?
Certainly they didn't 'just start happening' at the end of the 19th Century! Just like physics and cooking (a la Delia), economics has always been there, we just didn't have a recognisable framework or rules for it. We've had them before and we'll have them again.
Get over it and stop the panic mongering, the sky isn't about to fall on our heads by Toutatis! As my great great great great great great great gandfather used to say... "Now where did I put that extra blanket?"
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#157 - Guy Croft.
I can understand why you would feel that way, but ultimately the failure of every business is down to the management of that business.
If a ship sinks in a storm, it's because the captain navigated into (or failed to navigate away from) the storm. It's not the fault of the storm - which like a recession is a natural event of capitalism.
I know there are bad creditors, I know that predicting interest rates and growth is hard - but I never said it was easy.
Part of the problem recently is that it has been so easy to start a business, because funding was so readily available. You mention dragon's den - of which I am an avid fan - and on there you can clearly see some of the crazy ideas people get about starting businesses.
In your particular situation - whilst I do sympathise - the buffetting you experience with the exchange rates should be offset with exchange derivatives (which is what their intended use was for - not spculation). Also I would advise that anyone who works in ANY car / engine manufacturing business has a timeline as petrol engines will be obsolete in the not to distant future. It's true it might not be in your businesses lifetime - but if you're intending to pass it on it's certainly something worth considering.
I'm not saying I'm alright jack - I am merely pointing out that too many businesses are set up on a whim and without any proper thought - and mostly by borrowing astonromical amounts in the hope that profits will exceed the payments.
All the business I am involved with are based on a model for much tougher economic times than this. I bought my house on the premise that I could handle the repayments at 15% interest rates (going from the previous recession).
The problem is that most startup business presume that the rate they get today on their borrowing will be the same today and tomorrow - a fundamental failure to appreciate historical changes and to be prepared.
It never used to be like this - this is a capitalist invention spurred on by the dream of ownership passed to all of us from our un-trustworthy governments.
I of course feel empathy for those businesses do go under - in the same way I feel empathy for those who will have their properties repossessed in the coming months.
However - this is the game - these are the rules - and this is how it's played.
Changing the game would be a good idea and I would be all up for that - but there is no call for that because people are frightened into 'never changing for safety sake'.
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176 - marcusbailus
Read Marx's theory of Labour Value theory and you will see this is very much capitalism gone wrong - or more accurately, never working.
In order to maintain the profit / return for an investment either the costs of labour have to be reduced (paying workers less) or an increase in capital investment - either with technological advances or simple economies of scale. This is an ever increasing circle and need for further investment. We had already invested all the 'real' money years ago, and since then we have been finding the extra capital from credit.
I can never understand how capitalist followers can talk about 'free market' and 'need for regulation' in the same sentence.
If my car doesn't drive how I want it to - I change it - I don't constantly tinker with the steering and my driving style to accomodate.
That's what we have been doing with the economy since 1974.
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In a global economy, there we be all sorts of strange consequences of this upheaval. The price of oil has fallen dramatically but the pound has also fallen. Nevertheless oil has fallen more so there is a net gain to consumers. Interest rates have fallen. A net gain to consumers. If you earn revenue and profit in dollars there is a net gain. If you export, the pound having fallen against many currencies there is a net gain. At some point investors won't like minimum yields from three month US T bills and the movement of capital will start again. At some point investors will see that shares in companies that actually produce things are a bargain especially if you are using dallars to buy. And before too long the discounting will stop because profits might become as important as market share.
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249. ItsTimeToRevolt
Marx was in an entirely different time when the 'workers' at the bottom were little more than slaves. The position of todays 'workers' in no way equates to the position of a 'worker' in Marx time.
Marx is irrelevant - read Friedman instead.
I can never understand how capitalist followers can talk about 'free market' and 'need for regulation' in the same sentence.
Neither can I - regulation doesn't work, people should stop trying to make it work it is expensive and useless.
All that is requried is transparency and anti-fraud measures - as long as buyer and seller know what they are agreeing to, they should be allowed to get on with it.
The regulator made all banks act the same, the public (and business) had no option but to use these flawed banks.
Let banks do what they please (ultra-safe or ultra-risky or anything in between), just ensure they properly declare what they are doing and let customers make their own choices.
If I want to start a new bank/local friendly society, it should be between me and anyone who choses to join. But regulation (paperwork and cost) means that the established banks have it all to themselves.
So the FSA ensure we are condemned to use a flawed system, while the taxman ensures that we pay for their failure twice over.
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"Unless we're moving into a world - heaven forefend - of semi-permanent nationalisation of our banks" - Robert Peston
Why "semi", and why "heaven forfend"? Is this just a pro-market ideological reflex? As you say in your piece, the private banks have made a complete mess of things - and of course, they've run blubbering to nanny state to clear it up. There is absolutely no reason to believe they won't do the same again, and again, given the chance. It is high time the "commanding heights" of the economy were brought under democratic control.
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#251. the-real-truth
Aah - you mention the evil one... (Milton Not Karl)
A pact with the 'Boys from Chicago' to destroy the world - Ming the Merciless could not have done it better!
(Sorry, if I am being a bit obscure but read up on the life and times of the late Milton Friedman economic guru and adviser to both Thatcher and Regan)
I we want to blame any particular individual for the Credit Crunch it is had to find anyone better than Milton Friedman 1912 - 2006)
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Unfortunately our Government seems to think that the solution to the current crisis, that has been caused by excessive debt, is to create even more debt. That's socialist economics for you!
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251 - the-real-truth
Marx may have been from a different era, but the principles are still the same - nothing has changed except the perception of the worker that they are no longer workers, but actually production owners. The lines are less clear than they were - but are there nontheless.
Sadly this is not true - and is only a perception placed by the manipulation of the workers mind.
I have read Friedman and it appears to me to be a 'handbook for the rich'. Rumour has it that the marginal utility theory has replaced the LVT - so please tell me where the marginal utility has been for the last 7 years of boom? If marginal utility is a valid theory - why is there so much waste in the world? Why do people use phrases like "I bought it but I have never used it" or "people will pay whatever they feel something is worth".
M.u. fails because humans don't make rational and logical decisions. It's absolutely clear that in this country no-one considered the utility of their second house in the country, or considered the utility of their second or third car, no one considered the utility of the 300 pairs of shoes they bought.
Also - just because everyone now has it programmed into their heads that it's fair to make a profit - doesn't mean it's any more true than when laisse-faire economics first said it was.
There are 2 types of people in this world - those who would quite happpily work for the enjoyment and fulfillment it gives them - and those who will only work for greed i.e. to have more than everyone else. Sadly the latter control our economic system. I'm also afraid that most of the people in the latter category are not very intelligent - because they actually feel they can improve their social standing - which of course they are highly unlikely to as they will never control the means of production.
I completely agree with your concept of a free market - alas this will not and can not ever be achieved. There is a world of imperfect knowledge and in every deal made there is a winner, and a loser.
This latest escapade demonstrates why the free market could never operate properly - because as in the case of the banks - no-one can afford to let them fail - therefore there has to be intervention. They could not be trusted to regulate themselves - and yet they spent the last 10 years rejecting regulation claiming it stifled business.
Also the market NEVER provides for social costs and benefits. Mainly because there is very little money to be made.
So we're trying to operate a system that doesn't work for any social need, doesn't self regulate, is ultimately unfair due to imperfect knowledge and keeps getting out of control creating booms and busts - each one bigger than the last (nearly).
Isn't that a failed system? or do we have to wait until it totally collapses before we change it?
I agree that at the moment the options on the table are very few - but until someone comes up with a better system, I'll stick with the one that actually makes sense - not the one that only works if everyone is greedy.
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Broadfern@254,
Is it "socialist economics" that has caused the crisis, which follows three decades in which right-wing policies of privatization and reducing taxes on the rich have been followed round the globe? Which government are you refering to? The "socialist" government of George W. Bush, which has created more debt than any in history? You really ought to try taking off your ideological blinkers and taking a peek at reality some time, it can be most refreshing!
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#242: "The only real option to purge the global debt, is to go for inflation. I cant see any other way."
I can see another way. Default.
All bad debt, defined as an inability to repay the outstanding sum over time, not just make interest payments, should be defaulted. That is the correct way to treat bad debt. Those in over their heads should do the responsible thing and admit they have a problem.
Inflating it away is indiscriminate and causes massive collateral damage. It destroys the real wealth of savers and businesses that acted responsibly and avoided the spiral of debt, and it causes terrible harm to people on fixed incomes, such as pensioners, who in every past instance worldwide of national inflationary debt reset froze and starved. The only people it helps is those who are broke, cannot stand the thought of anyone else remaining solvent and believe misery needs company.
Inflation is betrayal.
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Surely no one can deny the fact that the economic theories and ideas of Hayek and Friedman have been predominant throughout the world over the last thirty years.We see the result, chaos in world financial markets, businesses destroyed, growing unemployment, families thrown out of their homes, crooks and thieves making fortunes.It was Thatcher, more than anyone that imported the ideology into the UK. Was she the real enemy within?
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Private borrowing and public borrowing both increase the money supply and effect the economy in more or less the same way. This is the reason why PFIs are such a nonsense. The only significant difference is that private lenders will lose there own or the shareholders of their companies money if their loans become toxic.
This was supposed to make private lenders more cautious and much wiser, and was the basis of the theories of Hayek and Friedman, who argued for strict limits on public investment to make room for the allegedly wiser private investment. Their theories are now holed below the waterline, and hopefully the "public bad, private good" slogan will be abandoned.
Replacing private debt with public debt should not do any great harm to the real economy, provided private debt is not allowed to get out of control again.
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here is a thought
instead of giving money to the banks the government could give every tax payer in the uk say 5 million pounds
this money would go into you personal bank account so the banks would get to use it but it would eliminate most consumer debt and get the property market moving again and in 5 years well who knows...
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#260: The 5 million pounds so distributed would buy a loaf of bread.
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I think it's about time that someone corrected uneducated media correspondents on a small matter pertaining to BRITAIN.
The media is all in favour of using the term 'Britain' in articles relating to the current banking crisis. However, I suggest they consider the following :
Fact : The UK government has, for some reason, not employed a 'level playing field' approach in compensating depositors of Icelandic banks on the mainland.
They are providing 100% compensation for depositors of certain banking institutions (IceSave), and applying the £50,000 rule to others (Kaupthing).
Fact: The government has, for some reason, suggested that depositors of an Icelandic bank in the Isle of Man (Kaupthing) are 'on their own', despite the fact that UK government actions directly resulted in the problems being encountered by that institution in the Isle of Man.
Whilst the UK government remains totally hypocritical and duplicitous in it's approach to these problems, I would very much appreciate if the media would educate itself very rapidly in the difference between the UNITED KINGDOM and the BRITISH ISLES.
This would avoid confusion, especially for those with financial interests in both UK and Isle of Man Icelandic financial institutions.
I intend to post this to as many relevant blogs, 'Have your Say', and feedback forums as I can find, in the hope that someone, somewhere, might take note of the fact that the entire British media, banking system, and governing establishment has completely abandoned
constitutional arrangements, in favour of political and institutional expediency.
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#262 "Fact: The government has, for some reason, suggested that depositors of an Icelandic bank in the Isle of Man (Kaupthing) are 'on their own', despite the fact that UK government actions directly resulted in the problems being encountered by that institution in the Isle of Man."
That would be because the Isle of Man is not part of the United Kingdom. It has its own parliament and government. Financially, it has its own "Financial Supervision Commission" - equivalent to the FSA in the UK. The Isle of Man is also a 0% corporate tax haven, which I suspect is why some UK residents parked their money there rather than using a mainland bank. Interesting fact - Jeremy Clarkson is a resident of the Isle of Man for tax purposes - the upper limit on personal taxation is only £100k.
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I think your blog is excellent. Thanks for keeping me in touch.
Did you ask Hester about his salary deal in your recent interview (£1,2m - 1 50% rise)? What did he say by way of justification if any?
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In response to #263, I should say that Chris_X has entirely missed the points I was raising in #262.
Please
1. Reacquaint yourself with the 'new' (not that new really) tax rules governing offshore banking for UK residents.
2. Consider reading the following references relating to the UK governments constitutional responsibility to represent the Isle of Man in international relations and affairs.
"Her Majesty?s UK Government is responsible for the Island?s defense and international relations but the Isle of Man is not part of the United Kingdom"
http://www.gov.im/cso/crown/office_gov.xml &
http://www.iomtoday.co.im/politics/Scale-of-Kaupthing-Singer-amp.4585380.jp
The FACT remains. The UK government has not employed a level playing field approach in its handling of the affairs of investors affected by the collapse of Icelandic banks within it's jurisdiction.
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Any comment on the 1.5% rate cut from the BoE?
Why this won't be passed on in it's entirety, etc?
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Two things:
1) Where are the angry people storming the barricades? Has the last 10 years left us all politically flabby? Affluence has dulled the senses and now we are paying for our complacency. Those on low and middle incomes (the vast majority) are again paying to keep the rich elite secure in Richistan. yet no voice is beinh heard calling for a radical overhaul, i guess we have the death of marxism to thank for that.
2) What is the green response to the downturn...a reduction in consumption is good for the environment but what would we put in its place? it seems our leaders only have two options - growth and its attendant environmental degradation or recession with unemployment, bankruptcies and misery for the poor.
This economic system is bust (for the majority) and has been for a long time, the relative affluence of the past with its bread and circuses have blinded us to a really equitable alternative...so where are the angry theorists and activists who can offer an alternative?
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#265 pure_logic: sorry, but you can't have it both ways - "the Isle of Man is not part of the United Kingdom... The FACT remains. The UK government has not employed a level playing field... within it's jurisdiction."
The key here is that the Isle of Man banks *aren't* directly under the jurisdiction of the government of the United Kingdom - if they were, they would be regulated by the FSA, and residents and corporations of the Isle of Man would be subject to the same taxation regime as UK residents and corporations. Icesave et al *were* under the jurisdiction of the UK government, they were granted banking licenses by the UK government, their UK divisions were registered at Companies House and regulated by the FSA.
I am familiar with the taxation rules, and in theory the Controlled Foreign Company regulations mean that UK residents should pay tax in the UK on corporations registered in the Isle of Man (or Jersey/Guernsey), rather than taking advantage of the 0% tax rate. In practice, with confidentiality rules, and even nominee directors and shareholders, there are many Isle of Man companies doing business that should be paying tax in the UK, but aren't.
My point was simple: if the Isle of Man wants to be part of the UK financial system, then it has to actually join the UK, accept regulation by the FSA and lose control over its own financial industry, and end the beneficial tax regime. This is something that historically the people of the Isle of Man haven't wanted, and that is why they aren't covered by the UK savings guarantee scheme.
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It is most amusing to hear from some political and economic commentaters that Gordon Brown thinks he is making headway with the lie that the current mess was not his( and his govenment's) doing?
*10 years of power when Brown was directly responsible for UK economic strategy
*10 years of insufficient regulation on investment banking and retail banking( we are all still getting spam mail for domestic credit cards and loans in the letterbox even today)
* 10 years of increasing red tape for business
* 10 years of overly complicated clever dick fiscal administration
* 10 years of fiscaly bleeding the middle classes dry
* 10 years of increasing the long term unemployed ranks
* 10 years of reducing the fiscal responsabilty of the super rich friends of Mandy and Tony
*10 years of increasing the civil service admin numbers
*10 years of headline policies being issued with insuffient detailed planning with poor implementation and resulting wasted public money particularly in the health and education sectors
* 10 years of lip service on public transport
* Why are we set for a deeper recession than other developing countries
* Why are we now adopting greatly increased public borrowing to bale out badly managed banks
*Why did Brown raid our pension funds
*Why are we haeding for record unemployment
*Why is the housing market set to devalue by 50%
* Why are we heading for deflation
Brown and his fellow MP's will be exposed at the next general election because Joe Public really does know that Brown's lie that it is all global and not me gov is just that. Also we will now have 2 years of economic hell and no matter what he does he will have no where to turn and no more lies to pedal.
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And the tories would have done nothing substantially different.
The temptations would have been just as great for them.
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